Having worked on a number of television science fiction shows which had regularly gone over-budget, creator J. Michael Straczynski concluded that a lack of long-term planning was to blame, and set about looking at ways in which a series could be done responsibly. Taking note of the lessons of mainstream television, which brought stories to a centralised location such as a hospital, police station, or law office, he decided that instead of "[going] in search of new worlds, building them anew each week," a fixed space station setting would keep costs at a reasonable level. A fan of sagas such as the Foundation series, Childhood's End, The Lord of the Rings, and Dune, Straczynski wondered why no one had done a television series with the same epic sweep, and concurrently with the first idea started developing the concept for a vastly-ambitious epic covering massive battles and other universe-changing events. Realizing that both could be done in a single series, he began to sketch the initial outline of what would become Babylon 5. Straczynski set five goals for Babylon 5. He said that the show "would have to be good science fiction" as well as good television ("rarely are [sci-fi] shows both good [sci-fi] and good TV; [they're] generally one or the other"); it would have to do for science fiction television what Hill Street Blues had done for police dramas, by taking an adult approach to the subject; it would have to be reasonably budgeted, and "it would have to look unlike anything ever seen before on TV, presenting individual stories against a much broader canvas." He further stressed that his approach was "to take [sci-fi] seriously, to build characters for grown-ups (not a Wesley in the bunch), to incorporate real science but keep the characters at the center of the story." Some of the staples of television science fiction were also out of the question (the show would have "no kids or cute robots"). The idea was not to present a perfect utopian future, but one with greed and homelessness; one where characters grow, develop, live, and die; one where not everything was the same at the end of the day's events. Citing Mark Twain as an influence, Straczynski said he wanted the show to be a mirror to the real world and to covertly teach.

Described as a "window on the future" by series production designer John Iacovelli, the story is set in the 23rd century on a large space station named "Babylon 5" -- a five-mile-long, 2.5 million-ton rotating colony designed as a gathering place for the sentient species of the galaxy, in order to foster peace through diplomacy, trade, and cooperation. Instead, acting as a center of political intrigue and conflict, the station becomes the linchpin of a massive interstellar war. This is reflected in the opening monologue of each episode, which includes the words "last, best hope for peace" in season one, changing to "last, best hope for victory" by season three.

The series consists of a coherent five-year story arc taking place over five seasons of 22 episodes each. Unlike most television shows at the time, Babylon 5 was conceived as a "novel for television", with a defined beginning, middle, and end; in essence, each episode would be a single "chapter" of this "novel". Many of the tie-in novels, comic books, and short stories were also developed to play a significant canonical part in the overall story.

The cost of the series totalled around $90 million for 110 episodes.

Creator and showrunner J. Michael Straczynski wrote 92 of the 110 episodes of Babylon 5. He also scripted all 44 episodes in the third and fourth seasons; according to Straczynski, a feat never before accomplished in American television. Other writers to have contributed scripts to the show include Peter David, Neil Gaiman, Kathryn M. Drennan, Lawrence G. DiTillio, D.C. Fontana, and David Gerrold. Harlan Ellison, a creative consultant on the show, received story credits for two episodes. Each writer was informed of the over-arching storyline, enabling the show to be produced consistently under-budget. The rules of production were strict; scripts were written six episodes in advance, and changes could not be made once production had started.

Though conceived as a whole, it was necessary to adjust the plotline to accommodate external influences. Each of the characters in the series was written with a "trap door" into their background so that, in the event of an actor's unexpected departure from the series, the character could be written out with minimal impact on the storyline. In the words of Straczynski, "As a writer, doing a long-term story, it'd be dangerous and short-sighted for me to construct the story without trap doors for every single character. That was one of the big risks going into a long-term storyline which I considered long in advance." The character of Talia Winters was to have undergone a transformation into a Psi-Corps secret agent, having been revealed as a "sleeper," whose true personality was buried subconsciously, and who acted as a spy, observing the events on the station and the actions of her command staff. When Winters's portrayer Andrea Thompson left the series, this revelation was used to drop the character from the series. Ratings for Babylon 5 continued to rise during the show's third season, but going into the fourth season, the impending demise of network PTEN left a fifth year in doubt. Unable to get word one way or the other from parent company Warner Bros., and unwilling to short-change the story and the fans, Straczynski began preparing modifications to the fourth season in order to allow for both eventualities. Straczynski identified three primary plot-threads which would require resolution: the Shadow war, Earth's slide into a dictatorship, and a series of sub-threads which branched off from those. Estimating they would still take around 27 episodes to resolve without having the season feel rushed, the solution came when the TNT network commissioned two Babylon 5 made-for-television films. Several hours of material was thus able to be moved into the films, including a three-episode arc which would deal with the background to the Earth/Minbari war, and a sub-thread which would have set up the sequel series, Crusade. Further standalone episodes and plot-threads were dropped from season four, which could be inserted into Crusade, or the fifth season, were it to be given the greenlight. The intended series finale, "Sleeping in Light," was filmed during season four as a precaution against cancellation. When word came that TNT had picked up Babylon 5, this was moved to the end of season five and replaced with a newly-filmed season four finale.

In anticipation of future HDTV broadcasts and Laserdisc releases, rather than the usual 4:3 format, the series was shot in 16:9, with the image cropped to 4:3 for initial television transmissions. Babylon 5 also distinguished itself at a time when models and miniature were still standard by becoming one of the first television shows to use computer technology in creating visual effects. This was achieved using Amiga-based Video Toasters at first, and later Pentium and Alpha-based systems. It also attempted to respect Newtonian physics in its effects sequences, with particular emphasis on the effects of inertia.