Welcome to Sky Valley was recorded in early 1993 and scheduled for release in January 1994. They sneak-previewed the completed album at Foundations Forum 93 and contributed the song "Demon Cleaner" to the sampler disc. Due to mild success from their previous album, Kyuss had been promoted from their subsidiary record label "Dali" to the main label "Chameleon." On November 11, 1993 Chameleon Records abruptly shut down. Their joint-venture partner Elektra quickly picked up the band and scheduled the album for release in March 1994. The album was then delayed for another three months after that, eventually being released almost a year after being initially recorded.
This is the first Kyuss album to feature bassist Scott Reeder, who replaced Nick Oliveri in 1992. Welcome to Sky Valley was the last to feature founding member Brant Bjork. The song "N.O." was originally recorded by Across The River, a band fronted by Mario Lalli and featuring bassist Reeder. After Reeder left The Obsessed and joined Kyuss, Bjork suggested they record "N.O." as a tribute to Across The River.
On compact disc, Welcome to Sky Valley was originally released with its ten total songs contained in three tracks, with an additional, fourth hidden track. It was later re-released with all ten tracks separated individually. However, most commercially sold versions of the compact disc contain the three tracks, a setup which is meant to encourage listeners to experience it as a full album instead of as a collection of separate songs. Guitarist Josh Homme claimed in an interview that the band "just wanted it to be like hell to play on a CD player". The album's liner notes instruct the listener to "Listen without distraction".