Sonic the Hedgehog 4 was originally going to be a mobile exclusive game under the title "Sonic the Portable" before being made into a cross platform game marketed as a sequel to the classic trilogy on the Genesis. This name remains left in the game in Carnival Street Zone where it is displayed on the ferris wheel in the level background on a blurred out neon sign.

For a week in the leadup to Sonic the Hedgehog 4: Episode I's gameplay and title reveal, Sega posted a daily countdown showing a lineup of Sonic's friends' names, eliminating a set each week before landing on just Sonic. This was in response to a high demand from Sonic fans at the time for a game centered on just Sonic and Dr. Eggman without any of Sonic's allies assisting him nor any greater villains superseding Eggman.

In March 2012, producer Takashi Iizuka was asked on a interview if there was going to be an Episode III. He said:

"We are looking forward to hearing the feedback from the users for Episode 2, but we are currently not planning to release another episode. We just want to see how the users accept this episode."

In January 2015, Ken Balough said in a Facebook reply that they were plans for Sonic the Hedgehog 4: Episode III, but for reasons "that can't be discussed", it was scrapped.

The first part of the boss battle theme from Episode 1 is actually an unused boss battle theme from a beta of Sonic 3D Blast.

During development, the game was code-named "Project Needlemouse", which comes from the prototype name for Sonic, Mr. Needlemouse.