The album centred on themes of poverty and working-class life, as well as the destruction and subdivision of old Victorian neighbourhoods—a practice that had become commonplace in North London during the 1970s.
Muswell Hillbillies was the band's first album for RCA Records, their prior recordings having been released on Pye Records (Reprise Records in the United States). Their contract with Pye/Reprise expired the same year. The album was recorded between August and October 1971 at Morgan Studios, London, using a new brass section, the Mike Cotton Sound, which included Mike Cotton on trumpet, John Beecham on trombone and tuba, and Alan Holmes on clarinet.
The album was not a commercial success (it failed to chart in the United Kingdom and peaked at #48 in the U.S.), and its sales were a disappointment following the success of Lola the previous year. Stereo Review magazine called the poor-selling record "album of the year" in 1972 (even though it was released on 24 November 1971). In the 1984 Rolling Stone Album Guide, Rolling Stone editors gave the album five stars out of five and called it Davies' "signature statement" as a songwriter.
In a retrospective review for Allmusic, Stephen Thomas Erlewine feels the album is a wide-ranging collection of Ray Davies compositions which focus on the tensions and frustrations of modern life. The album introduces a number of working class figures and the stresses with which they must contend.
A remastered deluxe edition of Muswell Hillbillies was released in the UK on 7 October 2013, with several bonus tracks, alternate takes, and BBC recordings all remastered by Andrew Sandoval and Dan Hersch. On 10 November 2014, a Legacy Edition was released for the United States, with disc 1 containing the remastered stereo album, and many of the UK Deluxe Edition bonus tracks remastered by Vic Anesini, while the second disc is a DVD with promotional TV performances (previously released in the UK on The Kinks At The BBC box set) from the era.
The front cover picture was taken in The Archway Tavern, a pub in Archway (more than two miles away from Muswell Hill). The back inset picture, showing the band below a signpost giving directions to Muswell Hill, was taken on the small traffic island at the intersection of Castle Yard and Southwood Lane in Highgate.