It was a real experience in a club. I was asked to dance by somebody who was a fabulous looking woman. I said "no thank you". And she went in a cab with my manager straight afterwards. It's based on a personal experience. But not every word.
– Ray Davies
Ray Davies has claimed that he was inspired to write "Lola" after Kinks manager Robert Wace spent a night in Paris dancing with a transvestite. Davies said of the incident, "In his apartment, Robert had been dancing with this black woman, and he said, 'I'm really onto a thing here.' And it was okay until we left at six in the morning and then I said, 'Have you seen the stubble?' He said 'Yeah', but he was too pissed [intoxicated] to care, I think".
Drummer Mick Avory has offered an alternative explanation for the song's lyrics, claiming that "Lola" was partially inspired by Avory's frequenting of transvestite bars in west London. Avory said, "We used to know this character called Michael McGrath. He used to hound the group a bit, because being called The Kinks did attract these sorts of people. He used to come down to Top of the Pops, and he was publicist for John Stephen's shop in Carnaby Street. He used to have this place in Earl's Court, and he used to invite me to all these drag queen acts and transsexual pubs. They were like secret clubs. And that's where Ray [Davies] got the idea for 'Lola'. When he was invited too, he wrote it while I was getting drunk".
Despite claims that the song was written about a supposed date between Ray Davies and Candy Darling, Davies has since claimed this rumour to be false, saying that the two only went out to dinner together and that he had known the whole time that Darling was trans.
In his autobiography, Dave Davies said that he came up with the music for what would become "Lola", noting that brother Ray added the lyrics after hearing it. In a 1990 interview, Dave Davies stated that "Lola" was written in a similar fashion to "You Really Got Me" in that the two worked on Ray's basic skeleton of the song, saying that the song was more of a collaborative effort than many believed.