Following the Sex Pistols' breakup in 1978, Lydon spent three weeks in Jamaica with Virgin Records head Richard Branson, in which Lydon assisted Branson in scouting for emerging reggae musicians. Branson also flew American band Devo to Jamaica, with an aim to installing Lydon as lead singer in the band. Devo declined the offer.[2]

Upon returning to England, Lydon approached Jah Wobble (né John Wardle) about forming a band together. The pair had been friends since attending the same school in the early 1970s, and had sometimes played music together during the final days of the Sex Pistols. Both had similarly broad musical tastes, and were avid fans of reggae and world music. Lydon assumed, much as he had with Sid Vicious, that Wobble would learn to play bass guitar as he went. While that had proven a fatal assumption with Vicious (Lydon cites his musical inability as a prime reason for the Pistols' breakup), Wobble would prove to be a natural talent. Lydon also approached guitarist Keith Levene (né Julian Keith Levene), with whom he had toured in mid-1976, while Levene was a member of The Clash. Lydon and Levene had both considered themselves outsiders even within their own bands. Jim Walker (né James Donat Walker), a Canadian student newly arrived in the UK, was recruited on drums, after answering an ad placed in Melody Maker.