Although Insomniac gave up the development rights to the Spyro series following the third game, the success of the PlayStation titles lent itself to a continued series of games across various platforms. The game established Spyro as a well-known platforming mascot on the PlayStation alongside Crash Bandicoot, and two sequels, titled Spyro 2: Ripto's Rage! and Spyro: Year of the Dragon, were later released for the PlayStation in 19, respectively. Critics praised the game's graphics and gameplay, while some noted its low difficulty level. Although sales were initially sluggish, it found larger success following the advent of the 1998 holiday season and went on to sell nearly 5 million copies worldwide. Spyro the Dragon was released by Sony Computer Entertainment as part of a general effort to reach out to a younger age demographic and compete with the more popular kid's platform, the Nintendo 64. Stewart Copeland, the former drummer for The Police, composed the game's music, and the titular character was voice acted by Carlos Alazraqui, alongside additional voices done by Clancy Brown, Michael Gough and Jamie Alcroft. The game was one of the first on the PlayStation to utilize shifting levels of detail among rendered objects, thanks to a panoramic engine developed by Alex Hastings which allowed the game's open-ended nature to be fully realized.

Taking inspiration from the film Dragonheart, the game started out as a more mature title with a dark and realistic approach, but the direction was shifted to have a more whimsical and light-hearted tone to appeal to a wider market of consumers. Artist Craig Stitt suggested a game about a dragon, and work began on a new game. Spyro the Dragon started development following the release of Insomniac's debut game, Disruptor, which sold poorly but was generally praised by critics, impressing Universal Interactive enough to encourage them to make a second game.

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