Springsteen was working on Human Touch, which he intended to release sometime in 1990, but the project took him longer than he thought. He shelved the project in early 1991 and came back to it in September of the same year. Intending to record one more song for the album ("Living Proof"), he ended up with ten new songs, which became Lucky Town. Once he completed Lucky Town, he decided to release both albums at the same time. While most of the songs from the album have received little to no performances since the reunion of the E Street Band, "If I Should Fall Behind" was played at every show during the 1999-2000 Reunion Tour and was included in the Live in New York City DVD and CD release.
Compared to Human Touch, Lucky Town has a more stripped down, folksy sound and is more personal in terms of its songs' lyrics. Human Touch consisted of mostly love songs, while Lucky Town focuses on more specific events in Springsteen's life. The opening track "Better Days" expresses his desire to start over after some rough patches in his life (his divorce from his first wife). "Living Proof" is about the birth of his first son and "Local Hero" is about a time that he saw a picture of himself in a store window. When he went to buy it, the clerk told him it was a picture of a "local hero." "Souls of the Departed" recalls "Born in the U.S.A." both in terms of its big music sound and its scathing social commentary. The song was inspired by the Gulf War.
Upon release the album received generally positive reviews. Rolling Stone gave the album a positive review (a combined review with its companion album, Human Touch), but thought that the aims of the two albums "would have been better realized by a single, more carefully shaped collection." In a mostly positive review, Allmusic said of the album: "While Human Touch was a disappointing album of second-rate material, Lucky Town is an ambitious collection addressing many of Springsteen's major concerns and moving them forward."