As a teenager, Nas had chosen to pursue a career in rapping and had enlisted his best friend and neighbor, Queensbridge, Queens-native Willy "Ill Will" Graham, as his DJ. Nas first went by the nickname "Kid Wave" before adopting his more commonly known alias of "Nasty Nas". At fifteen, Nas met seventeen-year old producer Large Professor from Flushing, Queens, and was introduced to Main Source, a hip hop group of which Large Professor was a member. Nas made his recorded debut with Main Source, recording the opening verse on "Live at the Barbeque", from Main Source's debut studio album Breaking Atoms (1991), which would soon gather a considerable cult following. He later made his solo debut on the 1992 single "Halftime" for the soundtrack to the drama film Zebrahead (1992). The single added to the buzz surrounding Nas, earning him comparisons to the influential golden age rapper Rakim. Despite the substantial buzz this collaboration generated for Nas in the underground scene, the rapper struggled to gain a recording contract, and was rejected by major rap labels such as Cold Chillin' and Def Jam Recordings. Nas and DJ "Ill Will" Graham continued to work together, but their partnership was cut short when Graham was shot and killed by a gunman in his native Queensbridge on May 23, 1992, while his brother had also been shot, and survived, that night. Nas later cited this moment as "wake-up call" for him.

Meanwhile, the hip hop group 3rd Bass had dissolved, and MC Serch, a former member of the group, began working on a solo project. In mid-1992, Serch approached Nas. At the suggestion of producer T-Ray, Serch collaborated with Nas for "Back to the Grill", the lead single for Serch's solo debut album, Return of the Product (1992). At the recording session of this song, Serch discovered that Nas did not have a recording contract and, as a result, he contacted Faith Newman, an A&R executive at Sony Music Entertainment. As Serch recounted, "Nas was in a position where his demo had been sittin' around, "Live at the Barbeque" was already a classic, and he was just tryin' to find a decent deal." Search continued, stating "I think Nas didn't know who to trust, and it seemed that no one was teaching him the ropes. So when he gave me his demo, I shopped it around. I took it to Russell first, Russell said it sounded like G Rap, he wasn't wit' it. So I took it to Faith. Faith loved it, she said she'd been looking for Nas for a year and a half. They wouldn't let me leave the office without a deal on the table. Once Serch assumed the role of executive producer for Nas's upcoming debut album, he attempted to connect Nas with various producers. Based on his buzz at the time, numerous New York-based producers were eager to work with him and soon entered the Power House Studios with Nas. Among those producers was DJ Premier, who was known for his raw, aggressive production and heavy scratching, as well as his work with rapper Guru as a part of Gang Starr. Following his first solo production work on Lord Finesse & DJ Mike Smooth's landmark debut Funky Technician (1990) and Jeru the Damaja's debut album The Sun Rises in the East (1994), Premier began recording exclusively at D&D Studios prior to working with Nas.

Prior to recording, DJ Premier had listened to Nas's debut single, later stating "When I heard 'Half Time', that was some next shit to me. That's just as classic to me as 'Eric B For President' and 'The Bridge'. It just had that type of effect. As simple as it is, all of the elements are there. So from that point, after Serch approached me about doing some cuts, it was automatic. You'd be stupid to pass that up even if it wasn't payin' no money." Serch later noted the chemistry between Nas and DJ Premier, recounting that "Primo and Nas, they could have been separated at birth. It wasn't a situation where his beats fit their rhymes, they fit each other." While Serch contacted DJ Premier, Large Professor contacted Pete Rock to collaborate with Nas on a song that would ultimately be entitled "The World Is Yours". Shortly afterwards, New York producers Q-Tip and L.E.S. also gained the opportunity to work with Nas. Nas's father, Olu Dara, also contributed to the album. His cornet solo and rapper AZ's vocals were mixed with Nas's rapping in "Life's a Bitch". Throughout the recording, expectations for Illmatic were high, as AZ later stated "I got on Nas' album and did the 'Life's a Bitch' song, but even then I thought I was terrible on it, to be honest. But once people started hearing that and liking it, that's what built my confidence. I thought, 'OK, I can probably do this.' That record was everything. To be the only person featured on Illmatic when Nas is considered one of the top men in New York at that time, one of the freshest new artists, that was big."

Concerning the recording of the album's opening song "N.Y. State of Mind", producer DJ Premier later stated "Nas — he’s one of our saviors now. When we did ‘N.Y. State of Mind,’ at the beginning when he says, ‘Straight out the dungeons of rap / Where fake niggas don’t make it back,’ then you hear him say, ‘I don’t know how to start this shit,’ ’cause he had just written it. He’s got the beat running in the studio, but he doesn’t know how he’s going to format how he’s going to convey it. So he’s going, ‘I don’t know how to start this shit,’ and I’m counting him in [to begin his verse]. One, two, three. And then you can hear him go, ‘Yo,’ and then he goes right into it." DJ Premier later discussed the unexpectedness of Nas's delivery during the recording, stating "He didn’t know how he was gonna come in, but he just started going because we were recording. I’m actually yelling, ‘We’re recording!’ and banging on the [vocal booth] window. ‘Come on, get ready!’ You hear him start the shit: Rappers…. And then everyone in the studio was like, ‘Oh, my God’, ’cause it was so unexpected. He was not ready. So we used that first verse. And that was when he was up and coming, his first album. So we was like, 'Yo, this guy is gonna be big.'" With the majority of the album recorded, Premier contributed one last song. After the album's completion, Nas discovered that Pete Rock was sexually involved with a romantic partner of his at the time, resulting in the two falling out and not working with each other since.

Part of the reason for Illmatic's acclaim was the discerning treatment of its subject matter: gang rivalries, desolation, and the ravages of urban poverty. Nas, who was nineteen years old when the album was recorded, realistically depicts the darker side of urbanity, creating highly detailed first-person narratives that deconstruct the troubling lives of inner city teenagers. The symptoms of urban poverty are also addressed throughout the album, as well as nostalgic views of his environment's history, while the general lyrical theme of Illmatic alternates from moments of pain and pleasure to frustration and braggadocio. These narratives originate from Nas's own experiences in his hometown of Queensbridge, as the lyrics and the album cover both allude to the housing projects located in the Long Island City-section of Queens, New York. A columnist for OhWord.com later stated "Throughout lllmatic, listeners are implored to embrace their hardened upbringing as an imperative to move on to bigger and better things, both in the intellectual and material sense." The columnist described Nas as a "genius introvert who rose out of the rubble of Reaganomics to bless the mic with a forward brand of introspective, redemptive street poetry", and also stated "[his] narration glorifies the emergent poetic self as the embodiment of an elevated creative state that is potentially attainable by most any ghetto child...[His] narrative voice swerves between personas that are cynical and optimistic, naïve and world-weary, enraged and serene, globally conscious and provincial...[He] was a most worthy candidate to craft a palatable and subversive message for the rotten apple's disenfranchised youth. He was young and observant enough to isolate and analyze the positively formative moments of a project childhood while unflinchingly documenting the tragedies."

Despite its initial low sales, Illmatic made a profound impact on the burgeoning hip hop underground circuit, and marked a major stylistic change in hip hop music by introducing a new standard of lyricism.Before the album's release, hip hop lyricism was mostly defined by two popular forms. One was characterized by a fast-paced ragga-flow accompanied with a whimsical, often nonsensical lyrical delivery, and had been popularized by the Brooklyn-based groups Das EFX and The Fu-Schnickens. The other form was characterized by a slurred "lazy drawl" that sacrificed lyrical complexity for clarity and rhythmic cadence, and was exemplified by West Coast hip hop artists such as Snoop Dogg and Warren G. However, Illmatic's rhythmically-immaculate verbal pace and intricate, multi-syllabic internal rhyme patterns, inspired several rappers to modify their rapping abilities — bringing a renewed focus on lyricism to hip hop. According to musicologist and pianist Guthrie P. Ramsey of the University of Pennsylvania, "It set a benchmark for rappers in an artistic field consumed by constantly shifting notions of 'realness', authenticity, and artistic credibility."

Many respected mainstream and underground rappers have acknowledged Illmatic's influence. These wide range of artists include the battle rappers, SunN.Y. and Reef The Lost Cauze, Talib Kweli, Lupe Fiasco, and Saigon, the producers Just Blaze and Alchemist, as well as the platinum-selling rappers Eminem (who adopted a similar lyrical approach on his album, Infinite) and The Game, who makes references to the album on his debut, The Documentary. In his collaboration with Nas, "Hustlers", The Game made another ode towards Illmatic: "1995, eleven years from the day/I'm in the record shop with choices to make/Illmatic on the top shelf, The Chronic on the left, homie/Wanna cop both but only got a twenty on me/So fuck it, I stole both, spent the twenty on a dub-sack/Ripped the package of Illmatic and bumped that/For my ni**as it was too complex when Nas rhymed/I was the only Compton ni**a with a New York State of Mind"

Lyrics from Illmatic have also been sampled by other rappers, including Big L's "Ebonics" (which samples "It Ain't Hard to Tell"), Milkbone's "Keep It Real" (which samples "Life's a B****"), Real Live's "Real Live Sh**" (which samples "It Ain't Hard to Tell"), and most notably, Blu & Exile's "In Remembrance" (which samples "The World Is Yours" and "One Love") and Jay-Z's "Rap Game/Crack Game" (which samples "Represent") and "Dead Presidents II" (which samples "The World Is Yours"). Common's critically acclaimed album Be (2005) has been said to have been molded after Illmatic. On XXL's website, Illmatic was featured in a list of acclaimed hip hop albums, compiled by Clipse. Malice, a member of the hip hop duo, claimed: "Illmatic captured the whole New York state of mind for me. It embraced everything I knew New York to be. The album had 10 songs, all of them flawless. Me and my homies got great memories of rolling around listening to that, huslin', smokin', chillin'. That embodied everything that was right with hip-hop. That CD never came out my deck."