When a Skittles game was first proposed to eventual Darkened Skye executive producer Elizabeth Braswell by her boss, she responded "well, you have two choices: you can fire me now, and make the next year and a half much easier on me, or you can, like, not make me do this." The following night, she went to a bar and got drunk over the Skittles project, which she deemed "the end of [her] career". While intoxicated, she conceived the idea of using Skittles as a vehicle to do a self-aware high fantasy adventure game she had always wanted to do, but never got the chance.

Darkened Skye came about as a result of Simon & Schuster Interactive attempting to acquire the M&M's license for use in gaming, due to the popularity of the Spokescandy mascots. Skittles was simply a back-up option in case the M&M's deal fell through, but both licenses were acquired. While Dale DeSharone, one of the game's executive producers, believed it should have been aimed at a younger child audience, Mars wanted to attract an audience of people in their 20s, because that demographic did not buy Skittles as much as people in their 30s and older, though they were also adamant that the game couldn't be violent. The game's aesthetic was inspired by a series of late-1990s high fantasy Skittles commercials.

When the script for Darkened Skye was sent to Mars Incorporated, the only mandates given were to replace the word "damn" with "darn", remove an unspecified joke early into the game, and replace all snake enemies with "snake-like monsters".

Darkened Skye almost had its Skittles branding pulled late in development. Ultimately the product placement was retained, but not featured on the box.