In December 2004, Falcoon, the series' main illustrator, said the next game SNK Playmore were developing would be different from the recent spin-off The King of Fighters: Maximum Impact (2004), which was originally intended to be released as "The King of Fighters 2004". Development of the game began when SNK completed production on the crossover game Neo Geo Battle Coliseum (2005). SNK canceled production of The King of Fighters 2004 in the fall of 2004, after it was announced the company had signed an agreement with Sammy Corporation to use their arcade system instead of the Neo Geo MVS cabinets that had been used for the franchise previously.
When the arcade version was released in the US, cabinets in Tilt Studio locations used converted Final Furlong cabinets, instead of the standard Atomiswave cabinets. As a result of this, there were two screens, one for each player.
The King of Fighters XI's arcade version used Sammy Corporation's Atomiswave system. SNK commented that by using this new system, The King of Fighters XI would stand out from its predecessors due to improvements in both game-play mechanics and graphic quality, specifically the animation frames created for Iori Yagami. However, it lacked the AW-net, a program that allows for online play. SNK had previously tested this system for both Neo Geo Battle Coliseum (2005) and The King of Fighters Neowave (2004).
Hiroaki Hashimoto was the main designer for all of the game's characters, while Nona illustrated the endings.
SNK Playmore re-released the game in Japan on June 28, 2007, under the label of "SNK Best Collection". The company once again released the game for the PlayStation Network on December 17, 2014, in Japan.