The film developed after Williams illustrated some books by Idries Shah based on the ancient Arabian stories of Nasrudin. After, when Ken Harris started working for him he began a film based on Nasrudin which Ken Animated. Quite a bit of footage was done on this film, but the relationship between Shah and Willims had deteriorated and the film was changed to remove Nasrudin, who had been the main character. A thief character from the book was changed to be an unsuccessful, but persistent thief and the story was built back up from that point.

The Cobbler was added after some test animation from Art Babbitt with the character. Then came Zig-Zag (voiced by Vincent Price), which was mostly animated by Williams, and King nod by Babbitt. Alex (Richards son) did a lot of the animation on the Cobbler as well. There wasn't much storyboarding for the film, it wandered it's own way. Ken Harris animated very fast though, and Williams had to keep feeding him work. This meant he had to bash out some quick layouts to satiate the ravenous Harris. Williams felt that he got better work out of him this way. He wasn't too tied down to a storyboard.

During this time they were also making commercials in which they won several awards. Nobody got rich though, most of the profit went back into "The Film"

In the early 80's the film got financed Prince Mohammed Faisil of Saudi Arabia and they went into production on the
war machine sequence. The agreement was if the backers liked the sequence they would finance the rest of the film. They did like it but delays and extra expenses scared away the prince and his accountants.

Even at this point the film had a bit of a cult following. Clips of what they were working on were on several documentaries about Animation, Art Babbit, and Williams himself. In the mid 1980's Williams took his film to San Francisco to show his good friend Milt Kahl who was dying. He used ILMs (Industrial Light and Magic) screening room. Afterwards a bunch of ILM guys came out of the projection room screaming that it was the most incredible animation they had ever seen. He told him that he didn't have the money to finish the film.

The word spread and the producers of Roger Rabbit asked for a screening, so he sent it over. It was seen by Robert Zemeckis, Stephen Speilberg, and some people at Disney. It got a lot of exposure, but still no one would fund it. This is probably the time when some of the story points got lifted (intentionally or not) and made their way into Aladdin. What did happen is they asked Williams to Direct Who Framed Roger Rabbit.

After winning the Oscars for Roger Rabbit he did get the funding and Warner Bros. agreed to distribute it. They were in full production for a year and a half (much shorter than most animated films take) before everything fell apart.

Warner Bros. got nervous and sent someone from the Completion Bond Corporation to access the situation and asked to see what he had so far. At that point Warners pulled out and it was now CBC’s job to finish the film, no matter what. Williams and his studio were fired and Fred Calvert was hired to finish the film. Instead of following the work reel that William's had provided Warners, he basically used all the pieces to make his own version of the film. He dropped many sequences to fit in songs and had sequences animated in Korea. This starting from scratch approach would force him to take another year and a half to finish the film. The finished film was released in Australia and South Africa as "The Princess and The Cobbler". Miramax then purchased the film and made a few more changes like adding voices for some of the silent characters and cutting a few scenes. This version was eventually released in the US under the name "Arabian Knight."