Grace was released as the b-side of 777-9311, the first single from The Time's second album What Time Is It?. The song uses the musical backing of 777-9311 as its basis, with a staged interview between Morris Day and a fictitious journalist known as Bridgette Harrington (played by Vanity) overlaid, and was written and produced by Prince, although the song is officially credited to Morris Day.
Morris Day insists on calling the interviewer "Grace" throughout, giving the track's title.
While specific recording dates are not known, basic tracking of 777-9311 took place in May-June 1982 at Prince's Kiowa Trail Home Studio in Chanhassen, Minnesota (during the same set of sessions that produced Onedayi'mgonnabesomebody, I Don't Wanna Leave You, and several other tracks that were released over the next several years).
It is likely that the interview portion was recorded soon after, also at Prince's Kiowa Trail Home Studio, although this is unconfirmed.