Having achieved a major success with the comeback album Slave to the Rhythm and the best-selling hits compilation Island Life, both in 1985, Grace Jones delivered her next album the following year. Released under her new contract with Manhattan Records, Inside Story saw Jones working with producer Nile Rodgers of Chic (Jones had previously tried to work with the band during the disco era). The album was recorded at Skyline Studios in New York City and post-produced at Atlantic Studios and Sterling Sound. Inside Story is notable for being Jones' first foray into production, which resulted in frequent, heated clashes with Rodgers. Musically, the album explores varieties of pop music, with elements of jazz, gospel and Caribbean sounds, marking the point when Jones turned towards a more accessible, commercial sound. All songs were written by Grace Jones and Bruce Woolley. The artwork for the album was designed by Richard Bernstein, who had previously worked with Jones on artwork for the '70s albums Portfolio, Fame and Muse.
The release of Inside Story was surrounded by Manhattan Records' "most extensive marketing and merchandising campaign ever", as described by Billboard. The promotional strategy would include magazine and newspaper advertisements, street posters, radio spots and more, with the record company targeting the US market, where Grace had never been a mainstream pop star. Eventually, Inside Story would become one of Jones' greatest album successes, making the top 40 in a number of European countries. Despite being her lowest-charting album in the UK, it still sold well enough in the British market to be certified silver there. The album also remains her last entry to date on the US Billboard 200 albums chart.
In the 2015 book I'll Never Write My Memoirs, Jones stated: "When I listen to Inside Story, I can hear the energy of what was going on the moment it was made. [...] It's where I was at the time. Nile's ear was different from mine, and he was responding to his idea of me, and it was an American Nile production, with all that entails, but I think it is beautiful. There were other ways of doing that material, but I like how it ended up. I don't listen to all my records, but I play that one a lot, because it is interesting to hear what Nile was thinking."
The third single was different for the North American and European markets. The R&B-influenced "Crush" was chosen for the US and Canada, while the European market received the jazzy "Victor Should Have Been a Jazz Musician". Neither single, released in spring 1987, achieved chart success.