Barenaked Ladies began as the duo of Ed Robertson and Steven Page. The two went to school together since Robertson was in grade four (Page was a grade ahead) at Churchill Heights Public School, but were not friends until they ran into each other at a Harvey's restaurant following a Peter Gabriel concert.

Each interested to find that the other liked Gabriel, they began talking and found they had many of the same tastes. The two became friends, and bonded further when they were both counsellors at Scarborough Schools Music Camp. They would play songs together, and Steve was impressed by Ed's ability to harmonize.

When Page had an extra ticket to a Bob Dylan concert that no one wanted, he ran into Robertson at a party. The two attended the concert at Exhibition Stadium (most likely on August 29, 1988). Bored by the show, the two turned to amusing each other, pretending they were rock critics, inventing histories and comments about the Dylan band. They also made up various band names; one of which was "Barenaked Ladies".

On another front, Robertson had agreed to perform with his cover band in a battle of the bands at Nathan Phillips Square for the Second Harvest food bank.The band broke up and he forgot about the gig. When he received a phone call a week before the show, asking him to confirm the gig, he improvised that the name of the band had changed to "Barenaked Ladies", recalling the name from the Dylan concert.

He then called Page and asked if he wanted to do the gig; Page reportedly could not believe Robertson had given that name. They arranged three rehearsals and missed them all. The two played the show on October 1, 1988, but instead of competing, they played while the other bands set up, playing every song they could think of that they both knew.

The show went well and they were invited to open a show for another well-known local band, The Razorbacks, at the Horseshoe Tavern the coming weekend. They set up three more rehearsals, and again missed them all; they proceeded to improvise their set once again. This would set a precedent for an element of Barenaked Ladies concerts which still almost always contain some improvised raps or songs, as well as general improvised banter.

The two continued playing other shows like that and also began writing songs together. The band's first tape, Buck Naked, released in 1989, was recorded on a four-track recorder in basements and bedrooms. The pair became followers of comedy group Corky and the Juice Pigs, whom they credit with exposing them to the idea of comedic stage presence.

Page and Robertson presented the group with their tape, and were invited to open for the Juice Pigs on their cross-Canada tour. One night, in Toronto, Page and Robertson invited their friends, percussionist Andy Creeggan and bassist Jim Creeggan, who they knew from music camp, to play with them at a Christmastime club show.

The brothers were invited to join the band. Barenaked Lunch (also known as the Pink Tape) was released in 1990, and featured the two new band members. The tape had problems however as it was mastered incorrectly and played too fast.

After six months, Andy Creeggan went on a student exchange trip to Ecuador, and the band was lacking a percussionist. While playing at a buskers' festival in the summer of 1990, they met drummer Tyler Stewart, who took over the position. While Creeggan was gone the band gained some attention when they were winners at the 1990 YTV Achievement Awards.

They gained further attention when they squeezed into a small "Speaker's Corner" video booth in Toronto, and performed "Be My Yoko Ono" as well as an ode to Speaker's Corner. After the former song was aired on television it quickly became popular with viewers, and noticeably increased the band's fanbase.

Andy Creeggan returned in early 1991 to find that Tyler had taken over the percussion role. This caused some concern for him, and he then moved more toward keyboards, though he still played percussion (usually congas) on some songs. The band quickly embarked upon their first full tour of Canada.