SpongeBob SquarePants: Creature From the Krusty Krab was originally pitched as "SpongeBob SquarePants: 40 Winks", and while it would have released on multiple platforms, the pitch was spearheaded as a potential launch title for the Wii. The premise involved SpongeBob travelling through levels based on his friends' dreams and playing minigames to rescue them from being permanently stuck asleep, with the events of the dreams having a real impact on Bikini Bottom. Some of these early dream ideas included Sandy Cheeks fantasizing about being the next Olympic athlete, Mr. Krabs spending money "faster than he can make it", and Plankton leading an army of clones.

The game was originally planned to have side characters team up with SpongeBob to complete an objective, unlike the final game where only SpongeBob, Patrick and Plankton are playable alone. SpongeBob was also planned to transform into various objects like a bowling ball and a surfboard, similar to his behavior in the TV show. The pitch also touted the idea to have cross-game compatibility with other Nickelodeon titles (including older SpongeBob SquarePants and Nickelodeon games), allowing players access to more gameplay modes and other bonuses.