The song's title refers to Piedmont blues singer Blind Willie McTell, real name William Samuel McTier. In 1991 Dylan told Eliot Mintz that McTell was probably the "Van Gogh of the country blues." McTell also influenced the Allman Brothers Band, who covered his "Statesboro Blues."

The song's melody is loosely based on "Saint James Infirmary Blues," a song Blind Willie McTell covered in 1940. This is also probably the reason for the line, "I'm gazing out the window of the St. James Hotel."

In Dylan's Visions of Sin, Christopher Ricks makes some interesting observations about "Blind Willie McTell," staring with the line "This land is condemned."

Ricks ties this line all the way back to one of Dylan's first recorded songs, "Song To Woody," first put down in 1961. The song was an homage to folk singer Woody Guthrie, Dylan's musical hero. In Ricks' assessment, "Blind Willie McTell," which is also an homage to a musician, is connected back in many ways to "Song to Woody."

Guthrie is perhaps best known for his song, "This Land Is Your Land," which features the chorus, "This land is your land, this land is our land." The term "this land" can actually be drawn back even further, though, to the Bible. It has its own "substantial" entry in Cruden's Concordance to the Bible. The term appears in Genesis 12:7 and 24:7("Unto thy seed will I give this land"), and Exodus 32:13 ("I will multiply your seed as the stars of heaven, and all this land that I have spoken of I will give unto your seed").

So, when Dylan evokes the term "this land" in "Blind Willie McTell," he is evoking Guthrie's song, which itself is evoking the Bible. This makes it all the more powerful when Dylan finishes the line, "is condemned."

Ricks notes that these themes, reflecting back on "Song To Woody" and the Bible, continue throughout the song. The line, "But power and greed and corruptible seed, seem to be all that there is," clearly alludes to the New Testament's First Epistle of Peter 1:23 ("being born again, not of corruptible seed, but of incorruptible, by the word of God, which liveth and abideth forever").

As the song's narrator sits in the St. James Hotel contemplating the apparently grim nature of existence, he ends with the refrain, "And I know no one can sing the blues, like Blind Willie McTell." It seems a hollow sentiment, but Rickets doesn't think so, pointing to it as a declaration of "art's being a glory of man that does not wither."

Further coloring the meaning of the song is a quote from the sleeve notes for The Freewheelin' Bob Dylan: "What made the real blues singers so great is that they were able to state all the problems they had; but at the same time, they were standing outside of them and could look at them. And in that way, they had them beat."

Ricks also connects the line, "I smell the sweet magnolia blooming" to "Strange Fruit," with its line "Scent of magnolia sweet and fresh, and the sudden smell of burning flesh."

Rock journalist and Crawdaddy founder Paul Williams considered "Blind Willie McTell" to be one of Dylan's masterpieces, alongside "Don't Think Twice, It's Alright," "A Hard Rain's a-Gonna Fall," "Mr. Tambourine Man," "Like a Rolling Stone," and his film Renaldo & Clara. (Source: Bob Dylan: Performing Artist: The Early Years)

Dylan recorded this song during the sessions for Infidels in spring 1983. He decided to leave the song off the album, but it was officially released on 1991's The Bootleg Series Volumes 1–3 (Rare & Unreleased). There is also an electric version of the song floating around.

Mark Knopfler played guitar on the acoustic version; Mick Taylor played slide guitar on the electric one.

For all the high esteem in which Dylan fans hold this song, the artist himself seems less enamored. He claims he can't even remember why he chose to leave it off of Infidels, shrugging it off as "most likely a demo."

In 1984 he told Kurt Loder, "I didn't think I recorded it right." With Dylan, however, one must always consider his penchant for toying with the press.

After Dylan recorded this song, Willie McTell's niece visited him to show him photographs of her uncle.