The company planned to add more stages, but these were removed due to time constraints. Developers sought to make the levels as realistic as possible, with particular focus paid to the Esaka stage. Meanwhile, Elisabeth was created as a "leading lady" character to give Ash Crimson a rival. She was designed to fit the Psycho Soldier Team.
The staff had mixed opinions about newcomer Momoko due to her relatively young age. The movements of the boss character Magaki – the leader of the group of antagonists "Those from the Past" – were intentionally designed to "disgust and disturb fans". As a result, the company decided to utilize those characters in The King of Fighters XI with a bigger role. In 1999, SNK released a Fatal Fury installment named Garou: Mark of the Wolves whose narrative lacked closure. The addition of mid-bosses from Buriki One and Kizuna Encounter were meant to surprise gamers since their original moves did not "fit" in The King of Fighters XI, developers had to change some of them. As a result of this, there were two screens, one for each player.
When the arcade version was released in the US, cabinets in Tilt Studio locations used converted Final Furlong cabinets, instead of the standard Atomiswave cabinets. Hiroaki Hashimoto was the main designer for all of the game's characters, while Nona illustrated the endings. SNK had previously tested this system for both Neo Geo Battle Coliseum and The King of Fighters Neowave. However, it lacked the AW-net, a program that allows for online play. SNK commented that by using this new system, The King of Fighters XI would stand out from its predecessors due to improvements in both gameplay mechanics and graphic quality, specifically the animation frames created for Iori Yagami. The King of Fighters XI's arcade version used Sammy Corporation's Atomiswave system. SNK cancelled production of The King of Fighters 2004 in the fall of 2004, after it was announced the company had signed an agreement with Sammy Corporation to use their arcade system instead of the Neo Geo cabinets that had been used for the franchise previously. Development of the game began when SNK completed production on the crossover game Neo Geo Battle Coliseum in 2005.
In December 2004, Falcoon, the series' main illustrator, said the next game SNK Playmore were developing would be different from the recent spin-off The King of Fighters: Maximum Impact, which was originally intended to be released as " The King of Fighters 2004". Behind this healthy competitive tournament hides a hidden force called "People from the Past" with a mysterious goal.
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All these fighters will find themselves in a tournament full of mysteries and secrets started by motives that they’d ignored. Among the new KOF participants are Oswald, Duck King (a South Town veteran fighter himself), Momoko, and Elisabeth. In the advent of a new KOF tournament, new faces are handed invitations, while old faces, such as Eiji Kisaragi, return to the ring. Taking advantage of the situation at hand, Ash stole the Yata Mirror from Chizuru and drained her powers in the process. Mukai, a member of a mysterious group, stole the Orochi seal in the last tournament and broke it, causing confusion and destruction to happen from within sight. 10 PlayStation 2 Exclusive Hidden Characters.