The tracks for the album were originally recorded by engineer Rudy Van Gelder at his Van Gelder Studio in New Jersey. According to Holdsworth, this was done during a rehearsal session, after which the tapes were released by CTI without his or the other band members' consent. None of the musicians involved ever received royalties for their work. Holdsworth therefore considers the album an unauthorised release and not part of his discography.
John W. Patterson of AllMusic gave Velvet Darkness only 1.5 stars out of five, describing it as "an interesting snapshot of young stellar musicians doing their thing in a laid-back but energetic fusion-funk-rock groove", but more for completists and collectors. In his review of Holdsworth's 1982 album I.O.U., he also labelled Velvet Darkness as a "train-wreck disaster" and "infamous".
Velvet Darkness was first reissued on CD in 1990 through the Epic Associated division of CBS/Columbia Records as part of their "Contemporary Jazz Masters" series. This version was completely remixed and remastered from the original session tapes. The remixing process (which was not indicated within the CD packaging) significantly changed the sound of some instruments, especially the drums. Also included are five alternative takes as bonus tracks.
A second CD edition was reissued on 25 July 2002 through King Records of Japan with extensive liner notes written in Japanese. This is the first CD version to faithfully reproduce the sound of the original 1976 album, but does not include bonus tracks.