Director Jim Henson was focused on making an emotionally light-weight film compared to his previous works. He insisted on making Labyrinth a comedy that was interactive and personal. Henson hand-picked Terry Jones to pen the script at the advice of his daughter. He also heavily contributed to the final shooting script which differed greatly from Jones' original script.
Henson decided to have David Bowie sing in the film. Despite Jones' protest against the idea, he later incorporated it into the script. Henson lobbied for more humor at the request of Bowie who felt that the script lacked substantial humor. He also enlisted the help of Elaine May who added more humanity to the characters. Henson was so pleased with her work that he incorporated all the changes into the final filming script.
The casting process was mostly handled by Henson who was keen about who he wanted in the film. He scouted and attended auditions to find the perfect cast for the film. Henson even followed Bowie on his music tour to convince him to be in the film. He also worked with a lot of his mainstay filming crew from his previous films, including his son and daughter under the Jim Henson Company.