Arthur Mathews had a lifelong fascination with priests, and developed the character of Father Ted while working at Hot Press with Graham Linehan and Paul Woodfull in 1987–89. After considering several surnames, Linehan suggested Crilly, which stuck. Mathews has described his version of Ted as a generic priest, but Woodfull saw the character as more camp, and later said that he felt Mathews had preempted the camp/gay priest stereotype in Irish comedy.
During production weekends, Mathews and Woodfull had the idea for The Joshua Trio, a comedic U2 tribute band. The band performed various warm-up sketches written by Mathews, Woodfull and Linehan, who joined in a non-musical capacity. This led to a side-project, a short-lived sketch troupe called The Fun Bunch. Deciding to base a sketch around Mathews's Father Ted character, the group brainstormed for a surname in Linehan's Castleknock kitchen; Linehan suggested Crilly, which stuck immediately. Mathews debuted his character on-stage at a comedy night in the Project Arts Centre. The character was received better than Woodfull's own working-class Dublin priest, and Mathews later appeared as Father Ted in warm-up sketches for The Joshua Trio and Woodfull's other musical act, Tony St James and The Las Vegas Sound. As Ted, Mathews sometimes read from a book, Notes from Africa, purportedly written by Father Dougal McGuire, a missionary friend who described his experiences of being attacked and chased by natives. In one sketch, Ted discussed his concern for Dougal, who had been voted Most Unpopular Priest in Africa for two years running and was spending Christmas up a tree in the grounds of The Bob Geldof Centre. During one Tony St James Olympia gig, audience members shouted "Not a fucking priest!", but were pleased when Ted produced a portable confessional and proceeded to talk about it. On one occasion at The Purty Loft in Dún Laoghaire, he sang "We Don't Have to Take Our Clothes Off".
Later, Mathews and Woodfull included the character in The Starship Róisín, a short-lived science fiction comedy radio series they wrote for The Ian Dempsey Show on RTÉ Radio. An Irish parody of Star Trek, it followed the adventures of Captain Bono (played by Woodfull, based on the singer Bono) and his Vulcan sidekick Stephen "Spock" Roche (played by Mathews, based on cyclist Stephen Roche, with a "cold, cycling brain". Storylines involved "space bicycles", the ship chef Darina Alien (based on Darina Allen), emcee Tony St James (Woodfull), Johnny Guitar (a "little fella" who made guitar sounds), and ship chaplain Father Ted (Mathews). Woodfull later said that the show was "probably a bit too weird for [its] slot", and that, when the station suggested they take two of the characters and launch a spin-off called Tea and Toast with Tony and Ted, Mathews opted out.