Glenn Frey and Don Henley did not write songs together for their debut album Eagles, and they decided that they should collaborate after they had finished recording the debut album. According to Frey, he was lying on a couch playing the guitar, and came up with a guitar riff he described as "kinda Roy Orbison, kinda Mexican". He showed Henley the guitar riff and said: "Maybe we should write something to this. The title refers to a cocktail named Tequila Sunrise that was then popular. In the liner notes of 2003's The Very Best Of, Henley had this to say about the song:

"I believe that was a Glenn title. I think he was ambivalent about it because he thought that it was a bit too obvious or too much of a cliché because of the drink that was so popular then. I said, 'No-Look at it from a different point of view. You've been drinking straight tequila all night and the sun is coming up!' It turned out to be a really great song.

According to Glenn Frey, the song was written in the same week as "Desperado" and was finished fairly quickly. Henley said that Frey came up with changes for the bridge, and that "take another shot of courage" refers to tequila because they used to call it "instant courage." He said: "We very much wanted to talk to the ladies, but we often didn’t have the nerve, so we’d drink a couple of shots and suddenly it was, "Howdy, ma’am."