The idea to develop Final Fantasy XI as an online game was conceived by Hironobu Sakaguchi when establishing Square Pictures headquarters in Hawaii. Impressed by western MMORPGs that he discovered there, such as EverQuest, Sakaguchi convinced Square to begin the development of their own MMORPG and suggested that it be based on the Final Fantasy series. The team responsible for Chrono Cross was assigned to the development of Final Fantasy XI after the English localization of the former title. The game was the first developed under Square’s new philosophy to develop for “all platforms and media”. Hiromichi Tanaka, the producer of the game, has stated Final Fantasy XI is heavily influenced by Final Fantasy III, especially in its battle and magic systems. According to Tanaka, Square put in Final Fantasy XI what they could not put in the first Final Fantasy titles due to technical limitations, thus making Final Fantasy XI the “most [representative] Final Fantasy of all the installments”. The game was developed and ran on the Nvidia GeForce 4 Ti GPU, which the President of Square Y?ichi Wada described as the most powerful graphics processor available at the time. The game cost two to three billion yen (~$17–25 million) to create along with the PlayOnline Network Service and was assumed to become profitable over a five year timespan. By creating a unified game world instead of different ones balkanized by language, development costs were cut 66%. Since recurring monsters of the series are known by different names in the Japanese and English versions of the other installments, it was decided for Final Fantasy XI to use both Japanese and English names for different varieties of the same monsters.

It was originally announced that there would be a simultaneous release on the PlayStation 2 and PC as well as concurrent Japanese and American release, but this was later changed. There was also discussion of an Xbox release, but it was abandoned mainly because of its small 2 GB hard drive. Originally announced in January 2000 at the Yokohama Millennium Conference, there was a great deal of negative press. There were questions raised about naming the game the eleventh in the series, since it was not clear whether the game would have a structured story, which it ended up having, and the title of Final Fantasy Online was suggested. Following an August 2001 beta test in Japan, a public Japanese beta test was done in December 2001.

Following its PC release, Final Fantasy XI was listed as one of IGN’s most anticipated PlayStation 2 games of 2004. Sony launched a multi-million dollar ad campaign to promote Final Fantasy XI along with the PlayStation 2 hard drive add-on which the game required. Having been released on the PlayStation 2 as well as the personal computer, it became the first cross-platform MMORPG ever created. On June 14, 2002, the game server was down for four hours for maintenance to the database servers, bug fixes on the text interface, and a new patch for the game client. This is thought to be the first patch ever released for a console game. Other early issues included complaints by American players that experienced Japanese players had already completed all the quests. Square Enix responded by adding new servers in order to have game worlds with fewer expert players.

Final Fantasy XI is one of the first cross-console video games, and has continued to update its software to allow the game to run on new consoles. Square Enix noted that Nintendo’s use of “friend codes” was the primary reason Final Fantasy XI was not brought to the Wii. In December 2006, the PlayStation 2 versions of PlayOnline and Final Fantasy XI were able to install and run on the PlayStation 3. The Vana’diel Collection 2008 discs for the PlayStation 2 had installation issues on the PlayStation 3, causing them to be unusable. This problem was fixed on December 18, 2007 when firmware update 2.10 was released. After working with Microsoft to resolve Final Fantasy XI’s incompatibility issues with Windows Vista, Square Enix released a downloadable version of the PlayOnline client which is compatible with the operating system, although small bugs have appeared.