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Billy Preston wrote "You Are So Beautiful" with one of his regular collaborators, Bruce Fisher. Preston's inspiration was his mother, who worked as a stage actress. According to his friend Sam Moore (who had assumed it was a standard love song), Preston was appalled to learn that Moore was using the song as a means to attract young women each time he sang it in concert. In Moore's description, Preston told him: "That song's about my mother!" The composition incorporates part of Preston's 1969 song "Let Us All Get Together (Right Now)", which he wrote with soul singer Doris Troy.
According to Beach Boys biographer Jon Stebbins, although Dennis Wilson is not credited as a writer, he helped Preston finish writing "You Are So Beautiful". Preston and Wilson are said to have collaborated on the song while attending a party where they discussed the concept of beauty. In the opinion of Craig Hlavaty, writing for Houston Press, while Wilson never sought to claim a share of the song's authorship, "If you check out Wilson's solo work, you can hear where Wilson's mind took over 'Beautiful.'" Music journalist John Tobler, who wrote the liner notes for the 2011 reissues of Preston's A&M albums, says that "it was claimed" that Wilson collaborated with Preston at the party. In a 2004 interview, when asked whether his brother Dennis was "one of the uncredited writers" of "You Are So Beautiful", Brian Wilson said: "He did not write that song."
Television programs have used commercial recordings of the song. Seventies-themed sitcomThe Wonder Years used a recorded version of the song in Season 6, Episode 16, "Nose", where it played at the end of the episode at a school dance where Kevin's friend Ricky loses a girl with a large nose just as Ricky had come to appreciate her.
The song played in Season 5, Episode 9 of Full House.
The film Modern Romance (1981) includes an instrumental version of the song in its opening and closing titles, and also uses Joe Cocker's version to underscore its final scene.
Joe Cocker's version was also used in the film Carlito's Way (1993) and plays during Gail's apartment scene and over the film's end credits.
In the American comedy movie The Little Rascals (1994), the song is sung by Alfalfa to Darla on a boat.
In 2016, the song appears in the season one finale of Quantico entitled "Yes", first sung by a drunk Caleb Haas (Graham Rogers) and Brandon Fletcher (Jacob Artist) celebrating their graduation, then leading into the Joe Cocker version for the remainder of the scene.