George Lucas, inspired by Francis Ford Coppola's The Godfather Part II (1974) wanted to make his sequel darker and more complicated. Writer and director Bill Norton thought that cutting between four different time frames would be too jolting for most of the audience and also didn't like the various film formats used for each of the four storylines. Years later, Lucas would admit that Norton was right.
George Lucas came up with the idea of shooting each of the four storylines in a different aspect ratio. Milner's Drag racing was in the 1950's exploitation style using a wide angle, stationary camera. The Vietnam sequences were shot on 16-milimeter film, like the television reports of the time. Laurie and Steve's campus riot resembled a Hollywood version of student rebellions like The Strawberry Statement (1970) or Getting Straight (1970). Debbie's trip were in multiple-image split-screen, inspired by Woodstock (1970).
The climactic drag race needed 4,000 people in the grandstand. They were attracted by the promise of free Star Wars: Episode IV - A New Hope (1977) toys.
Producer Howard G. Kazanjian was asked by George Lucas to come up with a list of young California screenwriters to write the screenplay based on Lucas' outlines. When he picked Bill Norton, Lucas told him that if he did a good job on the script, he could direct the movie.
This sequel cost eight times as much as the original American Graffiti (1973), but was brought in within its three million budget and forty-five day schedule.