With founding member and keyboardist David Sinclair having left the band, Waterloo Lily has a jazzier feel than previous Caravan albums due to Sinclair’s replacement Steve Miller. The progressive rock and folk elements are still prevalent though and work well with the jazz on tracks such as "The Love in Your Eye" suite.
Active since the late 1960s, Caravan signed to the Decca/Deram label during the early 1970s and this album is considered a high-point of the band’s career. The album is being re-released to celebrate Decca’s 90th anniversary alongside other Caravan classics.