Skellington was recorded in just two days at the end of the sessions for Cope's 1988 album My Nation Underground. It was inspired by Cope's frustration with the work on My Nation Underground, which he had lost faith in even as he completed it. The two-day session used the same studio setup as the prior album but an entirely different approach. In contrast to the multiple overdubs, 1980s pop stylings and army of backing singers used on My Nation Underground, Skellington's sound was extremely skeletal, mainly acoustic, and sparsely orchestrated by Cope in association with his two main collaborators - Donald Ross Skinner (organ, piano, keyboards) and Rooster Cosby (percussion, brass).
At the time, Cope was signed to Island Records, who were not interested in releasing Skellington. This led to Cope releasing it via his own label Copeco, and later expanding the release via a deal with the independent Zippo Records label. When Island insisted that Skellington was illegal and should be withdrawn due to their contract with Cope, the artist refused and defiantly released yet another similar album (Droolian) just two months later. Eventually, the Island directors relented, and both records were allowed to continue in production.
Skellington was later expanded with the addition of a sequel Skellington 2: He's Back ... and this time it's personal, and re-released as Ye Skellington Chronicles (1993).