According to Bug! executive producer David Warhol, developer Realtime Associates was at one point contracted by Sega of America to create a Sonic the Hedgehog game as a launch title for the Sega Saturn. However, shortly after Realtime Associates agreed on a contract, Sega of Japan denied them permission to use the IP. Realtime Associates instead continued with the project as a new IP, Bug!, based on a cancelled project for the Sega Genesis.

A well-known claim relating to Bug! is that legendary film director Steven Spielberg endorsed the game as "the character that is going to do it for [the Sega] Saturn." This claim is somewhat dubious however, as both the 2009 IGN article the quote was popularized by and the internal pitch video for the game's sequel that the quote originated from cite the origin as being from his visit to the 1995 Consumer Electronics Show, which was in January, 4 months before Bug! would be revealed to the public at E3. Bug! creator David Warhol has stated that he was not there to actually see Spielberg approve of the game, but did know that he approved of the game.