The song was originally written as an acoustic piece by Jimmy Page and Robert Plant at Bron-Yr-Aur, the cottage in Wales where they went after their 1970 concert tour of the United States. It was then recorded in 1971 as an electric arrangement and was intended for release on Led Zeppelin IV but was held over and eventually placed on Physical Graffiti to fill up the double album.
The song alternates between soft and hard-rocking sections, with the lighter sections employing a tremolo effect on the guitar, or possibly by running it through a Leslie speaker, to give an 'underwater talking' feel. John Paul Jones plays a Hohner "Electra-Piano" electric piano on the track.
"Down by the Seaside" was never performed live at Led Zeppelin concerts.