This song was written for a 1930 stage production called Under A Virginia Moon, which was written by Georgia Haswell Fawcett. Billed as "A character comedy of southern life," one title that was rejected for the play was "When It's Sleepy Time Down South." Clarence Muse, who had a part in the play, asked if he could write a song for a scene after the director asked him to sing something as an underscore. Muse liked the title they had rejected (which was a line of dialogue in the play), and decided to use that as the title of his song.
When Muse went home, he got together with the songwriting brothers Leon and Otis René, and they composed "When It's Sleepy Time Down South" that night. The play had just a short run, but the song got a great response. In 1931, it was used in two films: Safe in Hell (sung by the film's star Nina Mae McKinney), and Heaven on Earth (sung by Muse).
The song was recorded by Mildred Bailey backed by Paul Whiteman's Orchestra and released on the Victor label, but the best-known version is the one that Louis Armstrong would later record. After playing a gig at the Cotton Club in Culver City, California, Armstrong was invited to the René house for dinner, where Leon and Otis played him the song. Armstrong loved it, and made the song his opening number. The song was soon widely recorded and has since become a Jazz standard. Some of the many artists to cover it include Al Hirt, Louis Prima, Harry Connick, Jr., Lou Rawls, Dizzy Gillespie and Billie Holiday.