Timothy B. Schmit came up with the song title and composed the nucleus of "I Can't Tell You Why", which he then presented to Glenn Frey and Don Henley and they completed the song together. Henley described the finished song as "straight Al Green", and that Frey, an R&B fan as he came from Detroit and grew up with the music, was responsible for the R&B feel of the song. Frey said to Schmit: "You could sing like Smokey Robinson. Let’s not do a Richie Furay, Poco-sounding song. Let’s do an R&B song."
Schmit describes the song as "loosely based on my own experiences". Schmit said: "I had some writing sessions with Don and Glenn and I threw out a bunch of my ideas and that one [for "I Can't Tell You Why"] stuck. I had [composed] a pretty good part of it, not a huge part but enough for them to think 'That could be good' and go with it. So Don, Glenn and I finished it over a few all night sessions." "When it was being developed in the studio...I knew it was a great song. I [thought] 'Yes! This is an amazing debut for me.' When we finally mixed it, we had a little listening party at the studio. As people were hearing it, Don turned to me and said, 'There's your first hit.'"
Schmit sang the lead vocals on the song, with Frey and Henley singing counterpoint. Schmit also played the bass on the track, which has the distinctive bass riff believed by Schmit to have been devised by Frey. According to Henley, Frey came up with the counterpart on the song, and played the guitar solo on the song.
In 1980 the band promoted the song with a music video which featured Schmit on bass guitar accompanied by Frey on the electric piano, although Frey recorded the guitar solos as it is printed on the LP inside sleeve (Joe Walsh played all the keyboard parts on the actual studio recording), with Henley on the drums, Don Felder on the electric guitar, Walsh on the organ and Walsh's touring sideman Joe Vitale on synthesizer. Live versions of the song were released in the 1980 album Eagles Live and 1994's Hell Freezes Over.