Waits attracted critical acclaim and a cult audience for his subsequent albums, The Heart of Saturday Night (1974), the two-LP live set Nighthawks at the Diner (1975), Small Change (1976), Foreign Affairs (1977), Blue Valentine (1978), and Heart Attack and Vine (1980). His music and persona proved highly cinematic, and, starting in 1978, he launched parallel careers as an actor and as a composer of movie music. He wrote songs for and appeared in Paradise Alley (1978), wrote the title song for On the Nickel (1980), and was hired by director Francis Coppola to write the music for One From the Heart (1982), which earned him an Academy Award nomination. While working on that project, Waits met and married playwright Kathleen Brennan, with whom he later collaborated.

Moving to Island Records, Waits made Swordfishtrombones (1983), which found him experimenting with horns and percussion and using unusual recording techniques. The same year, he appeared in Coppola's Rumble Fish and The Outsiders, and, in 1984, he appeared in the director's The Cotton Club. In 1985, he released Rain Dogs. In 1986, he appeared in Down by Law and made his theatrical debut with Chicago's Steppenwolf Theatre in Frank's Wild Years, a musical play he had written with Brennan. An album based on the play was released in 1987, the same year Waits appeared in the films Candy Mountain and Ironweed. In 1988, he released a film and soundtrack album depicting one of his concerts, Big Time. In 1989, he appeared in the films Bearskin: An Urban Fairytale, Cold Feet, and Wait Until Spring. In 1991, he appeared in the films Queens' Logic, The Fisher King, and At Play in the Fields of the Lord. In 1992, he scored the film Night on Earth; released the album Bone Machine, which won a Grammy Award for Best Alternative Music Album; and appeared in the film Bram Stoker's Dracula. In 1993, he released The Black Rider, the recording of a musical he had co-written with beat novelist William Burroughs for opera director Robert Wilson in 1990, and appeared in the film Short Cuts. In 1992, Alice, the second collection with Robert Wilson was staged.

A long absence from recording resulted in the 1998 release of Beautiful Maladies, a retrospective of his work for Island. In 1999, Waits finally returned with a new album, Mule Variations. The record was a critical success, winning a Grammy for Best Contemporary Folk album, and was also his first for the independent Epitaph Records' Anti subsidiary. A small tour followed, but Waits jumped right back into the studio and began working on not one but two new albums. By the time he emerged in the spring of 2002, both Alice and Blood Money were released on Anti Records. Blood Money consisted of the songs from the third Wilson/Waits collaboration that was staged in Denmark in 2000 and won Best Drama of the year. After limited touring in support of these two endeavors, Waits returned to the recording studio and issued Real Gone in 2004. The album marked a large departure for him in that in contained no keyboards at all, focusing only on rhythm stringed instruments.