A hurdy-gurdy is an odd instrument resembling an organ grinder. It is played by turning a crank and pressing buttons to play notes. In the song, Donovan finds a shimmer of enlightenment when he awakes from a sleep to see a hurdy-gurdy man singing songs of love.
Donovan in the London Daily Mail Weekend magazine dated May 20, 2006 said, "I was intrigued by the Maharishi Mahesh Yogi's teachings of transcendental meditation, which were also followed by The Beatles. I went with The Beatles and George's wife, Pattie Boyd, Cynthia Lennon and Jane Asher to stay with the Maharishi in the Himalayas for three months. For a while, Mia Farrow and her sister Prudence, shared the bungalow next to mine. She inspired John Lennon to write 'Dear Prudence.' 'Hurdy Gurdy Man' was influenced by the sounds I heard there."
Donovan wrote the song for his old guitar mentor Mac MacLeod, who had formed a power trio he called "Hurdy Gurdy." Donovan wanted MacLeod's band to record it but they played it in a heavy rock style and Donovan wanted it light and acoustic, so he kept it for himself.
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