Andrew Niccol completed a one-page film treatment titled The Malcolm Show in May 1991. The original draft was more in tone of a science fiction thriller, with the story set in New York City. Niccol stated, "I think everyone questions the authenticity of their lives at certain points. It's like when kids ask if they're adopted." In the fall of 1993, producer Scott Rudin purchased the script for slightly over $1 million. Paramount Pictures instantly agreed to distribute. Part of the deal called for Niccol to have his directing debut, though Paramount felt the estimated $80 million budget would be too high for him. In addition, Paramount wanted to go with an A-list director, paying Niccol extra money "to step aside." Brian De Palma was under negotiations to direct before he left United Talent Agency in March 1994. Directors who were considered after De Palma's departure included Tim Burton, Terry Gilliam, Barry Sonnenfeld and Steven Spielberg before Peter Weir signed on in early 1995, following a recommendation of Niccol. Bryan Singer wanted to direct but Paramount decided to go with the more experienced Weir.
Paramount was cautious about The Truman Show which they dubbed "the most expensive art film ever made" because of its $60 million budget. They wanted the film to be funnier and less dramatic. Weir also shared this vision, feeling that Niccol's script was too dark, and declaring "where he [Niccol] had it depressing, I could make it light. It could convince audiences they could watch a show in this scope 24/7." Niccol wrote sixteen drafts of the script before Weir considered the script ready for filming. Later on in 1995, Jim Carrey signed to star, but because of commitments with The Cable Guy and Liar Liar, he would not be ready to start filming for at least another year. Weir felt Carrey was perfect for the role and opted to wait for another year rather than recast the role. Niccol rewrote the script twelve times, while Weir created a fictionalized book about the show's history. He envisioned backstories for the characters and encouraged actors to do the same.
Weir scouted locations in Eastern Florida but was unsatisfied with the landscapes. Sound stages at Universal Studios were reserved for the story's setting of Seahaven before Weir's wife introduced him to Seaside, Florida, a "master-planned community" located in the Florida Panhandle. Pre-production offices were immediately opened in Seaside, where the majority of filming took place. Other scenes were shot at Paramount Studios in Los Angeles, California. Norman Rockwell paintings and 1960s postcards were used as inspiration for the film's design. Weir, Peter Biziou and Dennis Gassner researched surveillance techniques for certain shots.
The overall look was influenced by television images, particularly commercials: Many shots have characters leaning into the lens with their eyeballs wide open, and the interior scenes are heavily lit, because Weir wanted to remind viewers that "in this world, everything was for sale." Those involved in visual effects work found the film somewhat difficult to make, because 1997 was the year many visual effects companies were trying to convert to computer-generated imagery. CGI was used to create the upper halves of some of the larger buildings in the film's downtown set. Craig Barron, one of the effects supervisors, said that these digital models did not have to look as detailed and weathered as they normally would in a film because of the artificial look of the entire town, although they did imitate slight blemishes found in the physical buildings.