Tequila is made in and around the small town of Tequila, in Mexico's Jalisco province. Mexico has decreed that, in order to be classified as tequila, distilled spirits must be produced from blue agave plants grown in a precisely delineated area in the five Mexican states of Guanajuato, Jalisco, Michoacan, Nayarit, and Tamaulipas. Tequila must comprise at least 51 percent blue agave; the most common ingredient utilized for the remaining 49 percent is sugarcane, although other raw products may be used. Tequilas labeled "100% Blue Agave" are generally the best. The blue agave, which is genetically closer to a lily than a cactus, can take 8 to 12 years to mature. At that point the plants are cut off at the root and trimmed to remove the outer leaves, exposing the heart (called piña by the Mexicans after the fruit is resembles), which weighs 50 to 150 pounds and contains a sweet juice called aguamiel. These huge agave hearts are transported to the distillery, where they are steamed or roasted to extract their sugars. After the cooked agave is shredded, it is fermented for several days before being distilled twice in pot stills (a process similar to that for cognac) to about 150 proof. Tequila is generally bottled at 80 proof, although some of the aged versions are bottled at high alcohol levels.

By Mexican law, there are four categories of tequila: blanco, joven abacado, reposado, and añejo. Tequila blanco, also known as white, silver or plata, is bottled soon after distillation. Its flavor is smooth and fresh with an herbaceous, peppery quality. Tequila joven abocado, also called gold, is tequila blanco with flavoring and coloring added, typically through the addition of caramel. Legally it does not have to be aged. Tequila reposado, which may also have flavoring and coloring added, must be aged a minimum of 2 months, and can be aged for up to a year. Wood aging (usually in oak, sometimes redwood) endows reposados with hints of vanilla and spice and produces a mellower character than that of tequila blanco. Some reposados also use the word "gold" on their label, which has promoted the impression that all golds have been aged, although there's no legal requirement as such. Tequila añejo is aged for at least 1 year, and often 2 to 3 years. The best añejo (which some liken to fine cognacs) have a smooth, elegant, complex flavor, the result of a perfect marriage between wood aging and the intrinsically sweet agave. Popular brands of tequila include Herradura, José Cuervo, Patrón, Pepe Lopez, Porfidio, Sauza, El Tersoro de Don Felipe, Torada and El Viejito.