In 2001, Duff gained fame through her starring role in the Disney Channel series Lizzie McGuire. She became interested in pursuing a music career after attending a Radio Disney concert in 2001. "There were all these pop acts backstage at the concert," Duff explained. "They were all getting ready backstage and warming up, and I was like, 'I want to do this so bad.'" One day, Duff met Andre Recke, who would soon become her manager. She told him of her interest in becoming a singer and briefly performed for him. This prompted him to tell her, "I want to work with you." Recke said of his encounter with Duff, "When I met Hilary, I knew she had something special. Sometimes you just have that feeling, that, 'Wow, she's a star.'"
"I Heard Santa on the Radio" and "Tell Me a Story (About the Night Before)" are duets with Christina Milian and Lil' Romeo, respectively, and "Same Old Christmas" features Duff's sister Haylie.Santa Claus Lane features production from Matthew Gerrard, Chris Hamm, Alain Bertoni, Charlie Midnight and Chico Bennett; on the 2003 reissue, the bonus track "What Christmas Should Be" is produced by Charlton Pettus.
The album was released in the United States on October 15, 2002 by Buena Vista Records. It was reissued on October 14 of the following year with the bonus track "What Christmas Should Be".
The song "Santa Claus Lane" had a music video featuring Duff performing on Disney's Movie Surfers to promote the film The Santa Clause 2. "Tell Me a Story (About the Night Before)" (featuring Lil' Romeo) also had a music video and a radio release. It was promoted heavily on Disney Channel. In a 2013 interview with the website Idolator, Duff expressed her dislike for the latter song, saying that she has "blocked it out of my memory".
The album peaked at number 154 on the Billboard 200 in the United States, and also reached the second position of both the Top Heatseekers and Top Kid Albums charts. On December 9, 2003, the album was certified Gold by the Recording Industry Association of America for 500,000 shipments to retailers. Jaan Uhelszki, in an editorial review for Amazon.com, gave Santa Claus Lane a negative review. She noted that the album, consisting mostly of covers, "add[s] little to the holiday music canon". She also felt that it only "perks up" on songs that feature guest musicians.Allmusic gave the album three out of five stars.