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According to the lyrics, the magic referenced in the title is the power of music to supply happiness and freedom to both those who make it and those who listen to it. This was written by John Sebastian, who formed The Lovin' Spoonful with his friend, Zal Yanovsky. Sebastian and Yanovsky were in a group called The Mugwumps, and made a name for themselves playing clubs in Greenwich Village. When the other Mugwumps - Mama Cass Elliot and Denny Doherty - moved to California and formed The Mamas And The Papas, they formed the band and Sebastian began focusing on songwriting. The Lovin' Spoonful started playing electric instruments to get away from the folk music sound and attract a younger contemporary rock audience. The band's name was inspired by some lines in a song of Mississippi John Hurt called the "Coffee Blues". John Sebastian and others in the jug-folk scene of the time such as Geoff Muldaur credit Fritz Richmond for suggesting the name. The song "" is a tribute to Maxwell House Coffee, in which Hurt describes he only needs one spoonful to make him feel all right, what he describes as "my lovin' spoonful" in the song.

The Lovin' Spoonful played regularly at a famous club called The Night Owl Cafe. Said Sebastian: "We were playing pretty steadily for the local people from Greenwich Village who were part of the jazz scene or part of the kind of downtown 'in crowd.' They were 'finger poppers,' guys who played chess, 'beatniks.' But there was this one particular night as we were playing, I looked out in the audience and saw this beautiful 16-year-old girl just dancing the night away. And I remember Zal and I just elbowed each other the entire night because to us that young girl symbolized the fact that our audience was changing, that maybe they had finally found us. I wrote 'Do You Believe In Magic' the next day."

Turning down an offer from Phil Spector because they didn't want to "be swallowed up under his name," The Lovin' Spoonful signed to a new record label called Kama Sutra. This was the first song they recorded for the label, and it was the first of a string of hits for the group, which included "Daydream," "Did You Ever Have To Make Up Your Mind?" and "Summer In The City."

The Lovin' Spoonful's version was ranked number 216 on Rolling Stone's list of The 500 Greatest Songs of All Time.