The theme of the song is inspired by the words of David in the Psalms and Jesus in the Gospel of Matthew in the Bible: "I will instruct you and teach you in the way which you shall go: I will guide you with my eye (Psalm 32:8). "Look at the birds of the air; they neither sow nor reap nor gather into barns, and yet your heavenly Father feeds them. Are you not of more value than they?" (Matthew 6:26) and "Are not two sparrows sold for a farthing? and one of them shall not fall on the ground without your Father. But the very hairs of your head are all numbered. Fear not therefore, you are of more value than many sparrows" (Matthew 10:29–31).
Civilla Martin, who wrote the lyrics, said of her inspiration to write the song based on the scriptures:
Early in the spring of 1905, my husband and I were sojourning in Elmira, New York. We contracted a deep friendship for a couple by the name of Mr. and Mrs. Doolittle—true saints of God. Mrs. Doolittle had been bedridden for nigh twenty years. Her husband was an incurable cripple who had to propel himself to and from his business in a wheel chair. Despite their afflictions, they lived happy Christian lives, bringing inspiration and comfort to all who knew them. One day while we were visiting with the Doolittles, my husband commented on their bright hopefulness and asked them for the secret of it. Mrs. Doolittle's reply was simple: "His eye is on the sparrow, and I know He watches me." The beauty of this simple expression of boundless faith gripped the hearts and fired the imagination of Dr. Martin and me. The hymn "His Eye Is on the Sparrow" was the outcome of that experience.