While at Hampshire College, Smith formed the band Heatmiser with classmate Neil Gust. After Smith graduated from Hampshire, the band added drummer Tony Lash and bassist Brandt Peterson and began performing around Portland in 1992. The group released the albums Dead Air (1993) and Cop and Speeder (1994) as well as the Yellow No. 5 EP (1994) on Frontier Records, and were then signed to Virgin Records to release what became their final album, Mic City Sons (1996). During this time, Smith also began his solo career.
In 1996, filmmaker Jem Cohen recorded Smith playing acoustic songs for the short film Lucky Three: An Elliott Smith Portrait. Two of these songs would appear on his next album, Either/Or, which was another Kill Rock Stars release. Either/Or came out in 1997 to favorable reviews.The album found Smith venturing further into full instrumentation, with several songs containing bass guitar, drums, keyboards and electric guitars, all played by Smith. The album title was derived from the two-volume book of the same name by Danish philosopher Søren Kierkegaard, whose works generally deal with themes such as existential despair, angst, death and God.
By this time, Smith's already-heavy drinking was being compounded with use of anti-depressants. At the end of the Either/Or tour, some of his close friends staged an intervention in Chicago, but it proved ineffective. Shortly after, Smith relocated from Portland to Brooklyn, New York.
In 1996, Smith was selected by director and fellow Portland resident Gus Van Sant to be a part of the soundtrack to his film, Good Will Hunting. Smith recorded an orchestral version of "Between the Bars" with composer Danny Elfman for the movie. Smith also contributed a new song, "Miss Misery", and three previously released tracks ("No Name #3", from Roman Candle, and "Angeles" and "Say Yes", from Either/Or). The film was a commercial and critical success, and Smith was nominated for an Academy Award for "Miss Misery". Not eager to step into the limelight, he agreed to perform the song at the ceremony only after the producers informed him that his song would be played live that night-either by him or another musician of their choosing.
Smith commented on the surrealism of the Oscars experience: "That's exactly what it was, surreal... I enjoy performing almost as much as I enjoy making up songs in the first place. But the Oscars was a very strange show, where the set was only one song cut down to less than two minutes, and the audience was a lot of people who didn't come to hear me play. I wouldn't want to live in that world, but it was fun to walk around on the moon for a day."
The final album Smith completed in his lifetime, Figure 8, was released on April 18, 2000. It featured the return of Rothrock, Schnapf, Brion and Waronker, and was partially recorded at Abbey Road Studios in England, with an obvious Beatles influence in the songwriting and production. The album garnered very favorable reviews,[ peaking at number 99 on the Billboard 200 and 37 on the UK Album Charts.
The album garnered praise for its power pop style and complex arrangements, described as creating a "sweeping kaleidoscope of layered instruments and sonic textures." However, some reviewers felt that Smith's trademark dark and melancholy songwriting had lost some of its subtlety, with one reviewer likening some of the lyrics to "the self-pitying complaints of an adolescent venting in his diary."
Around the time he began recording his final album, Smith began to display signs of paranoia, often believing that a white van followed him wherever he went. He would have friends drop him off for recording sessions almost a mile away from the studio, and to reach the location, he would trudge through hundreds of yards of brush and cliffs. He started telling people that DreamWorks was out to get him: "Not long ago my house was broken into, and songs were stolen off my computer which have wound up in the hands of certain people who work at a certain label. I've also been followed around for months at a time. I wouldn't even want to necessarily say it's the people from that label who are following me around, but it was probably them who broke into my house." During this period, Smith hardly ate, subsisting primarily on ice cream. He would go for several days without sleeping, and then sleep for an entire day.
In the first of only three concerts performed in 2002, Smith co-headlined Northwestern University's A&O Ball with Wilco on May 2 in Chicago. He was onstage for nearly an hour, but failed to complete half of the songs. He claimed that his poor performance was due to his left hand having fallen asleep, and told the audience it felt "like having stuff on your hand and you can’t get it off." Smith's performance was reviewed as "undoubtedly one of the worst performances ever by a musician" and an "excruciating [...] nightmare". A reporter for the online magazine Glorious Noise wrote, "It would not surprise me at all if Elliott Smith ends up dead within a year."
On November 25, 2002, Smith was involved in a brawl with the Los Angeles Police Department at a concert where The Flaming Lips and Beck were performing. Smith later said he was defending a man he thought the police were harassing. Assuming that Smith was homeless, the officers allegedly beat and arrested him and Chiba. The two spent the night in jail. Smith's hand and back were injured in the incident, causing him to cancel a number of shows. Wayne Coyne, lead singer of The Flaming Lips and a friend of Smith's, stated concern over Smith's appearance and actions, saying that he "saw a guy who had lost control of himself. He was needy, he was grumpy, he was everything you wouldn't want in a person. It's not like when you think of Keith Richards being pleasantly blissed out in the corner."
Smith died on October 21, 2003 at the age of 34 years from two stab wounds to the chest. At the time of the stabbing, he was at his Lemoyne Street home in Echo Park, California, where he lived with his partner, Jennifer Chiba. According to Chiba, the two were arguing, and she locked herself in the bathroom to take a shower. Chiba heard him scream, and upon opening the door, saw Smith standing with a knife in his chest. She pulled the knife out, after which he collapsed and she called 9-1-1. Smith died in the hospital with the time of death listed as 1:36 p.m. A possible suicide note, written on a Post-it note, read: "I'm so sorry-love, Elliott. God forgive me."