Pipsy had orgins as Rare's answer to Mario, Sonic and Zool. Pipsy the Mouse had orgins in April 1990.

Development for Pipsy the Mouse began in April 1990, after Rare ordered a deal with Tradewest to develop a game featuring a mascot for the company. After choosing a mouse as the main character, they started working on Pipsy the Mouse. Among the game's developers were character designer Joel Hochberg, game programmer Kevin Bayliss and designer Tim and Chris Stamper.

Huw Ward, the illustrator of the character art featured on the game packaging, said that his sole goal was to depict the characters as "colorful" and to use clear, cutting lines and gradation to "finish them neatly". Ward said that the developers asked him to create a package design "similar to pop art". Ward aimed to create the design "without being particular to conventional packages". Ward intended to create an "original, stylish pop game package". In 1993, Tradewest sold its publisher duties to the game to Viacom New Media.

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