Writer Robert Towne, producer Robert Evans and director Jack Nicholson founded the production company T.E.N. in 1985 just to produce this film. When legal and financial problems occurred, Nicholson finished the project alone.
Producer Robert Evans was tapped early on to play the "second" Jake. Writer Robert Towne (who had hoped to direct the film) didn't think that Evans was up to the job and fired him, and Jack Nicholson became the picture's director. This film is/was the second in a planned trilogy of films.
Robert Towne had originally planned a trilogy of movies chronicling at eleven-year intervals (in narrative terms) the development and decline of southern California as the result of rapacious developers and tycoons. Chinatown (1974) had been water rights, The Two Jakes (1990) was to deal with oil and a third movie, set in the 1950s, would deal with pollution caused by the building of the freeway system. The final movie was to be called "Cloverleaf".