Vega herself said that she wrote the song sometime in 1982; Brian Rose has said that it was written sometime between mid-1981 and mid-1982. The lyrics of the song refer to a rainy morning, when she was at the diner on the corner, reading in her newspaper of “a story of an actor / who had died while he was drinking”, and afterwards “turning to the horoscope / and looking for the funnies”. Only two newspapers in New York City carried comic strips, or “funnies”, in 1981 and 1982, and only one, the New York Post, featured a front-page story of the death of William Holden (star of Sunset Boulevard), whose body was discovered on November 16, 1981. He had died from a fall at his apartment, suffered after drinking excessively. The story in the Post concerning Holden’s death was not carried until two days later on November 18, which is taken to be the exact date of the composition.

On that day in New York, however, the weather was not rainy, but overcast. Vega has acknowledged this by admitting that “Tom’s Diner” featured a composite of events, and that the rain was from a morning she remembered being in the diner during the spring of 1982, after the initial events of the song.

At a concert in the Exhibition Hall of Longwood Gardens in Kennett Square, Pennsylvania on Friday November 18, 2011, Vega performed “Tom’s Diner” as the final song of her second set; Dublin-born guitarist Gerry Leonard accompanied her. Beforehand she explained to the audience that the day marked the 30th anniversary of the one on which she wrote the song. She also noted in a self-deprecating manner that the actor who had died while he was drinking was William Holden and that, despite his fame, she indeed had never heard of him until the morning when she read about his death.