In the late 1970s, Atari acquired the rights to produce home versions of Namco's arcade games. After Pac-Man proved to be a success in the United States, Atari decided to produce a home port for its Atari 2600 console. The company believed the conversion would be simple because the arcade's success was attributed to the gameplay rather than impressive visuals. Development took around five months; the process started in late 1981 and finished in March 1982. At the time, Atari projected 10 million consoles were still actively used by video game enthusiasts. Atari decided to produce 12 million game cartridges, anticipating every Atari 2600 owner would purchase the game, while two million new customers would purchase the system to play it; management predicted sales would reach at least US$500 million.

Programming was handled by Tod Frye. The game uses a 4KB ROM cartridge, chosen for its lower manufacturing costs compared to 8KB cartridges, which had just become available at the time. After Atari acquired the rights to produce the game, Frye began work on a prototype version. The company wanted to release the prototype to capitalize on the 1981 holiday season. Development was hindered by the technical differences between the original Pac-Man's hardware and that of the Atari 2600. The original's arcade boards stored four times as much read-only memory (ROM) in addition to 2KB of both video and general random-access memory (RAM). The memory types are used to store and switch between graphical sprites. By contrast, the Atari 2600 had only 128B (1/16 of the arcade board) of general RAM and none dedicated to video. In addition, the Zilog Z80 CPU microprocessor used by the Namco Pac-Man arcade system was three times faster than the MOS 6507 CPU used by the Atari 2600.

With limited memory, Frye simplified the shape of the maze with block corners as opposed to rounded ones and a less intricate pattern of corridors. The round, white pellets in the original were changed to rectangular, brown ones on the Atari 2600. This change was to consolidate resources by using the same sprite used to create the walls. To achieve the visual effect of wafers disappearing after Pac-Man eats them, the console redraws the entire maze and wafers, excluding those that had been eaten. The sprites were animated differently to accommodate technical limitations. The Pac-Man character sprite as well as the maze and wafers sprites are drawn every frame, while the four ghosts are drawn at intervals. The four different ghosts take turns displaying on the screen and only one ghost is present at any given time, which creates a flickering effect. This effect takes advantage of the slow phosphorescent fade of CRT monitors and the concept of persistence of vision, resulting in the image appearing on screen longer than once every four frames.

After seeing the game, marketing manager Frank Ballouz informed Ray Kassar, Atari's president and CEO, that he felt enthusiasts would not want to play it. His opinion, however, was dismissed. To help the sale of the port, Atari promoted and protected their exclusive licensing of Pac-Man. Atari ran newspaper ads and promoted the product in catalogs, describing it as differing "slightly from the original". Legal action was taken against companies that released clones similar to Pac-Man for home consoles. For example, Atari sued Philips for its 1981 Magnavox Odyssey² game Munchkin and obtained a preliminary injunction against the company to prevent the sale of Munchkin cartridges. Several retailers assisted Atari with the release of the game. J. C. Penney was the first retailer to launch a nation-wide advertising campaign on television for a software title. Continuing a long-standing relationship between it and Sears, Atari also produced Pac-Man cartridges under the department store's label.

Anticipation for the game was high.Goldman Sachs analyst Richard Simon predicted the sale of 9 million units during 1982, which would yield a profit of $200 million.Pac-Man met with initial commercial success, selling 7 million copies and eventually becoming the best-selling Atari 2600 title. More than one million of those cartridges had been shipped in less than one month, helped by Atari's $1.5 million publicity campaign. However, purchases soon slowed and, by summer 1982, unsold copies were still in large quantities. Many buyers returned the games for refunds, and Atari was left with 5 million excess copies in addition to the returns. By 2004, the cartridges were still very common among collectors and enthusiasts—though the Sears versions were more rare—and priced at low amounts.

Critics negatively compared the port to its original arcade form, panning the audio-visuals and gameplay. In 1983, Creative Computing Video & Arcade Games reviewer Danny Goodman commented that the game fails as a replica of its arcade form. Conversely, he stated that such criticism was unfair because the hardware could not properly emulate the arcade game. Goodman further said that the port is a challenging maze game in its own right, and it would have been a success if fans had not expected to play a game closer to the original. In 1998, Next Generation Magazine called it the "worst coin-op conversion of all time", and attributed the mass dissatisfaction to its poor quality. In 2006, IGN's Craig Harris echoed similar statements and listed it as the worst arcade conversion, citing poor audio-visuals that did not resemble the original. Another IGN editor, Levi Buchanan, described it as a "disastrous port", citing the color scheme and flickering ghosts. Skyler Miller of Allgame said that although the game was only a passing resemblance to the original, it was charming despite its many differences and faults.

Ed Logg, a former lead designer at Atari, considered the development a rushed, "lousy" effort. Frye did not express regret over his part in Pac-Man's port and felt he made the best decisions he could at the time. However, Frye stated that he would have done things differently with a larger capacity ROM. Video game industry researchers Nick Montfort and Ian Bogost attribute the poor reception to the technical differences between the 1977 Atari 2600 console and the 1980 arcade hardware used in Pac-Man cabinets. They further stated that the conversion is a lesson in maintaining the social and cultural context of the original source. Montfort and Bogost commented that players were disappointed with the flickering visual effect, which made the ghosts difficult to track and tired the players' eyes. The two further said that the effect diminishes the ghosts' personalities present in the arcade version. Chris Kohler of Wired commented that the game was poorly received upon its release and in contemporary times because of the poor quality. However, he further described the game as an impressive technical achievement given its console's limitations.

Initially, the excitement generated by Pac-Man's home release prompted retail stores to expand their inventory to sell video games. Drugstores began stocking video game cartridges, and toy retailers vied for new releases. Kmart and J. C. Penney competed against Sears to become the largest vendor of video games. The game's release also led to an increase in sales of the Atari 2600 console.

In retrospect, however, critics often cite Atari's Pac-Man as a major factor in the drop of consumer confidence in the company, which led to the North American video game crash of 1983. Bill Loguidice and Matt Barton of Gamasutra stated that the game's poor quality damaged the company's reputation. Buchanan commented that it disappointed millions of fans and diminished confidence in Atari's games. Former Next Generation editor-in-chief Neil West attributes his longtime skepticism of Atari's quality to the disappointment he had from buying the game as a child. Calling the game the top video game disaster, Buchanan credits Pac-Man as a factor to the downfall of Atari and the industry in the 1980s. Author Steven Kent also attributes the game, along with Atari's E.T. the Extra-Terrestrial, to severely damaging the company's reputation and profitability. Montfort and Bogost stated that the game's negative reception seeded mistrust in retailers, which was reinforced by later factors that culminated in the crash.

Poor critical reception made this game one of many decisions that led to Atari's report of a $536 million loss in 1983 and the division and sale of the company's Consumer Division in 1984. On December 7, 1982, Kassar announced that Atari's revenue forecasts for 1982 were cut from a 50 percent increase over 1981 to a 15 percent increase. Immediately following the announcement, Warner Communications' stock value dropped by around 35 percent—from $54 to $35—amounting to a loss of $1.3 billion in the company's market valuation. Atari attempted to regain its market share by licensing popular arcade games for its consoles. The revenue from selling these console games did not reverse Atari's decline and the company went further into debt. In 1983, the company decreased its workforce by 30 percent and lost $356 million.

In late 1982, Atari ported Pac-Man to its new console, the Atari 5200. This version was a more accurate conversion of the original arcade game and was a launch title for the console, along with eleven other games. The port was also followed by conversions of Pac-Man's arcade sequels, Ms. Pac-Man and Jr. Pac-Man, for the Atari 2600. Both were better received than Atari's first Pac-Man title.Ms. Pac-Man, for example, features a larger ROM cartridge and addressed many critics' complaints of Pac-Man.