In 1958, while performing around Fort Worth, Texas, and working as a DJ hosting The Western Express, Willie Nelson attracted the attention of Pappy Daily. Daily, a record producer from Houston, offered Nelson a recording contract with D Records as well as a job as a writer for Glad Music. Nelson moved to Houston, where he also searched for musical gigs in ballrooms and clubs. At the Esquire Ballroom, band leader Larry Butler told Nelson that he could not offer a musician job. In response, Nelson suggested he sell original songs that he played for Butler on a reel-to-reel tape recorder. Butler liked the songs, but refused to buy, instead offering Nelson a job working six nights a week with his band. Nelson and his family settled in Pasadena, Texas, where he became a DJ on radio station KRCT. Later, he also taught guitar.

Nelson used his commute from Pasadena to the Esquire Ballroom as writing time, because the 30 mi (48 km) ride usually took an hour that he used to develop new lyrics. Over one week, he wrote "Crazy", "Night Life", and "Funny How Time Slips Away". At the time, Nelson's mood was negatively affected by his lack of stable employment while supporting his wife and three children, since his three jobs did not provide enough income. On his long night commutes to clubs, he compared his situation with those of his contemporaries and felt that "the world was asleep". According to his autobiography It's A Long Story: My Life, Nelson wondered if he was "Crazy" and completed the song as if he were a man whose relationship recently ended. Musician Sleepy LaBeef, who accompanied Nelson on upright bass on the song's demo recording, asserted that the songwriter had arrived in Houston with "Crazy" already written. Additionally, biographer Joe Nick Patoski noted that Nelson played "Crazy" for Butler along with the songs he planned to sell just as he arrived in the city. Nelson wrote "Crazy" in less than an hour, and originally titled it "Stupid". The intonation of the opening was inspired by Floyd Tillman's "I Gotta Have My Baby Back".

Nelson sold an original song, "Family Bible", which was then recorded by Claude Gray, whose version enjoyed success. But Nelson's employment situation remained unstable. He accumulated debt, while he often attended parties and drank to excess. In July 1960, Nelson was arrested for speeding and driving without a license. After several tardy incidents, he was fired by KRCT, then let go from a Pasadena club where he performed. Nelson then decided to move his wife and children to Waco, Texas, and, after the success of "Family Bible", moved to Nashville, Tennessee .

At first Nelson lived with Billy Walker, who found him an encyclopedia sales job. Walker also took him to different musi…

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Nelson recorded his own version of "Crazy" for his 1962 debut album, ...And Then I Wrote. Nelson's original demo of "Crazy" was released on 2003's Crazy: The Demo Sessions. Keely Smith recorded a version for the B-side of her 1965 Single "You're Breaking My Heart". In 1977, Linda Ronstadt released a version as a single from her album Hasten Down the Wind. Ronstadt's release reached number six on Billboard's Hot Country Songs chart. A version by Beverly D'Angelo was featured on the 1980 film Coal Miner's Daughter.

In 1993, Canadian country music singer Colleen Peterson charted with her version of "Crazy" at number 29 on the RPM country music chart. Julio Iglesias' single release of the song appeared at number 43 on the UK Singles Chart in 1994. In 1998, a cover of "Crazy" by industrial rock band Kidneythieves was featured on the soundtrack of Bride of Chucky (and later, in 2002, on their album Zerøspace). American singer LeAnn Rimes included "Crazy" on her 1999 album LeAnn Rimes. It reached number 36 on the UK Singles Chart.

"Crazy" was twice featured in the TV series Nashville: sung by Juliette Barnes in the 2014 episode "That's Me Without You", and by Barnes and Steven Tyler in a duet on the 2015 episode "Can't Let Go". Nelson recorded duets of the song with Mary Sarah (2014) and then with Carla Bruni (2017). In 2022, Heather Small performed a version of "Crazy" in series 3 of the British version of The Masked Singer.

"Crazy" was recorded by Lester Bowie & Brass Fantasy on his album "Avant Pop" in 1986 as a jazz interpretation.

In 2014, Neil Young released a "retro-tech" version on his album A Letter Home, co-produced by Jack White and recorded in a refurbished 1947 Voice-o-Graph vinyl recording booth.

• SecondHandSongs listing of known covers of "Crazy"
• Library of Congress essay on Patsy Cline's version and its inclusion in the National Recording Registry.
• Patsy Cline - Crazy on YouTube