The song’s title character is a transvestite whose strange hobby is stealing women’s clothes and undergarments from washing lines. According to Roger Waters, “Arnold Layne” was actually based on a real person: “Both my mother and Syd’s mother had students as lodgers because there was a girls’ college up the road so there were constantly great lines of bras and knickers on our washing lines and ‘Arnold’ or whoever he was, had bits off our washing lines.”
In January, Pink Floyd went to Sound Techniques studio in Chelsea (they had been there previously, to record two songs for Tonite Let’s All Make Love in London). Here, the band recorded “Arnold Layne” and a few other songs: “Matilda Mother“, “Chapter 24“, “Interstellar Overdrive“ and “Let’s Roll Another One” (which was renamed to “Candy and a Currant Bun“, at the lead of Waters).
Nick Mason said of why “Arnold Layne” was chosen over the other songs: “We knew we wanted to be rock’n’roll stars and we wanted to make singles, so it seemed the most suitable song to condense into 3 minutes without losing too much”. The band had tried to re-record “Arnold Layne” after signing up with EMI, but the Joe Boyd version from January was released instead.  The song would be Boyd’s last production for Pink Floyd. 
Boyd mentioned in several interviews over the years that “Arnold Layne” regularly ran for ten to fifteen minutes in concert (with extended instrumental passages), but the band knew that it had to be shortened for use as a single. He has also said it was a complex recording involving some tricky editing, recalling that the middle instrumental section with Richard Wright‘s organ solo was recorded as an edit piece and spliced into the song for the final mix.
The backing track for Arnold Layne was recorded in multiple takes on 4-track tape, the third being the best. Drums and Bass were recorded on track one, electric guitar on track two, keyboard on track three, and acoustic guitar on track four. It was then bounced into one track on another 4-track tape so vocals could be overdubbed. This was done across multiple takes, where take seven became the master.
Both “Arnold Layne” and “Candy and a Currant Bun” were mixed into mono for the single. Neither have ever been given a stereo mix, although the four-track master tapes still exist in the EMI tape archive.