Deschanel had a guest appearance on the television series Veronica’s Closet in 1998 and made her film debut in Lawrence Kasdan’s comedy Mumford (1999), revolving around the neurotic residents in a small town and co-starring Hope Davis, Jason Lee, Alfre Woodard and Mary McDonnell. Also in 1999, she appeared (non-singing) in the music video for The Offspring’s single “She’s Got Issues”. Deschanel co-starred in Cameron Crowe’s semi-autobiographical Almost Famous (2000), where she played Anita Miller, the rebellious older sister of a teenage journalist. Despite a modest box office response, the film received critical praise, winning the Golden Globe Award for Best Film – Musical or Comedy. Deschanel appeared in the independent drama Manic (2001), as the love interest of a troubled teen (Joseph Gordon-Levitt). The film was screened at the Sundance Film Festival and received a limited theatrical release. The New York Times found Deschanel to be “particularly spontaneous, unaffected and emotionally direct” in her role.

On September 27, 1999, Deschanel appeared as herself in the music video “She’s Got Issues” for The Offspring. Deschanel was a judge for the 9th Independent Music Awards. In 2005, she modeled for Chanel and Clements Ribeiro, and in 2010, she signed to represent Rimmel.

In 2001, Deschanel formed If All the Stars Were Pretty Babies, a jazz cabaret act with fellow actress Samantha Shelton. The pair performed around Los Angeles.

Following early notice, Deschanel took on supporting parts in four feature films released throughout 2002: Big Trouble, The New Guy, The Good Girl, and Abandon. In the comedy Big Trouble, with Tim Allen and Rene Russo, she played the daughter of a devoted and reluctant woman, and in the teen comedy The New Guy, starred as a guitar player in a band. Deschanel portrayed a cynical, plain-spoken young woman working in a big-box store in the black dramedy The Good Girl, opposite Jennifer Aniston and Jake Gyllenhaal. The psychological thriller Abandon saw her play the roommate of a woman involved in her boyfriend’s disappearance. Deschanel also made a one-episode appearance in Frasier, as an out-of-control young woman. The New York Times reported that Deschanel was “one of Hollywood’s most sought-after young stars”, in 2002, and the Los Angeles Times wrote in early 2003 that Deschanel had become a recognizable type, due to “her deadpan, sardonic and scene-stealing [film] performances” as the protagonist’s best friend. Deschanel objected to her typecasting, arguing, “A lot of these roles are just a formula idea of somebody’s best friend, and it’s like, I don’t even have that many friends. In high school, I stayed home all the time, so I don’t know how I’m everybody’s best friend now.”

Deschanel obtained her first leading film role debut in the independent drama All the Real Girls (2003) as Noel, a sexually curious 18-year-old virgin who has a life-changing romance with an aimless 22-year-old. The film premiered at the Sundance Film Festival and was an arthouse success. Her performance received wide critical acclaim, and Variety remarked: “Performances are all credible and naturalistic, but standing out from the rest is Deschanel’s work, which evinces an impressively direct connection to her character’s emotions. The actress does a wonderful job presenting a young woman who is trying, with varying degrees of success, to give voice to all sorts of things she has never felt or expressed before”. She received an Independent Spirit Award nomination for Best Actress. Also in 2003, Deschanel starred opposite Will Ferrell in the Christmas comedy Elf as a deadpan department store worker and the love interest of a man raised by Santa’s elves. Reviewers found the film to be a “spirited, good natured family comedy”, as part of an overall positive critical response, and budgeted at US$33 million, Elf made US$220.4 million worldwide.

In 2004, Deschanel starred in Eulogy, and in 2005 played Trillian in the film adaptation of Douglas Adams’s science fiction novel The Hitchhiker’s Guide to the Galaxy. She acted in Winter Passing (2005), co-starring Will Ferrell. Deschanel next appeared in Failure to Launch (2006), as the neurotic roommate of Sarah Jessica Parker’s character. She also had a recurring role in four episodes of the Showtime television series Weeds from 2006 to 2007 where she played Kat, Andy Botwin’s quirky ex-girlfriend. In September 2006, it was announced that Deschanel had signed on to play 1960s singer Janis Joplin in the film The Gospel According to Janis, to be co-written and directed by Penelope Spheeris. The film was scheduled to begin shooting in 2006, but was then postponed indefinitely; it was then resurrected again, with a planned release date of 2012, before being cancelled altogether in 2011. Deschanel expressed frustration with the cancellation, saying she had spent three years working on imitating Joplin’s scratchy singing voice.

In 2007, Deschanel appeared in Bridge to Terabithia, in which she played a quirky music teacher, and the animated film Surf’s Up, voicing a penguin. She took on the brief role of Dorothy Evans in the revisionist Western The Assassination of Jesse James by the Coward Robert Ford and starred in the B comedy Flakes, which was released in only one theater. Deschanel starred as DG in the Syfy Channel miniseries Tin Man, a re-imagined science fiction version of The Wonderful Wizard of Oz. It aired in December 2007. Deschanel also narrated the children’s book Players in Pigtails. She voiced Mary, Cletus’s daughter in three episodes of The Simpsons since debuting on the April 27, 2008 episode, “Apocalypse Cow”.

In March 2007, Deschanel contributed vocals to two songs “Slowly” and “Ask Her to Dance” on the album Nighttiming by Jason Schwartzman’s band Coconut Records. It was reported that Deschanel and M. Ward, who had previously performed with Deschanel on-stage, were recording music under the moniker She & Him. Their first album, titled Volume One, was released by Merge Records on March 18, 2008. It received a strong response from critics, with Paste magazine voting it the No. 1 Album of 2008. Patrick Caldwell of the Austin American Statesman wrote: “The album gently rambled through 13 tracks of sun-dappled pop, with a gentle Orbisonian charm and sweet, wistful vocals from Deschanel.”

In 2007, other singing credits followed: the television musical Once Upon a Mattress (“An Opening for a Princess”, “In a Little While”, “Normandy”, and “Yesterday I Loved You”); an old cabaret song in The Assassination of Jesse James by the Coward Robert Ford (“A Bird in a Gilded Cage”); and the short film Raving (“Hello, Dolly!”). Deschanel and the cast of school children sing the Steve Earle song “Someday” and War’s “Why Can’t We Be Friends?” in Bridge to Terabithia.

In December 2008, Deschanel became engaged to musician Ben Gibbard, lead vocalist for Death Cab for Cutie and The Postal Service. They married on September 19, 2009, near Seattle, Washington. On November 1, 2011, they announced their separation. Deschanel filed for divorce on December 27, 2011, citing “irreconcilable differences”. The divorce was finalized on December 12, 2012.

Deschanel reunited with Joseph Gordon-Levitt in the independent romantic drama about the development and demise of a relationship (500) Days of Summer (2009). The film garnered critical acclaim and became a “sleeper hit”, earning over $60 million in worldwide returns, far exceeding its $7.5 million budget. Mark Adams of the Daily Mirror found the film to be a “modern romance for grown-ups” and a “sweet-natured, funny, deeply-romantic tale” blessed with “top-notch performances by Deschanel and Gordon-Levitt, who are both charming and have real chemistry”. In December 2009, Deschanel guest-starred in a Christmas episode of the Fox crime procedural comedy-drama Bones, which was the first-ever on-screen pairing of the Deschanel sisters.

Deschanel recorded “The Fabric of My Life” for a 2009 advertising campaign for Cotton Incorporated. On March 23, 2010, the second She & Him album, Volume Two, was released. Deschanel and M. Ward both featured on The Place We Ran From (2010), the album by Snow Patrol member Gary Lightbody’s side project, Tired Pony. Deschanel contributed vocals to the tracks “Get on the Road” and “Point Me at Lost Islands”, while M. Ward contributed vocals and guitar to the track “Held in the Arms of Your Words” and guitar to the track “That Silver Necklace”.

Deschanel performed “God Bless America” during the seventh-inning stretch in game three of the National League Championship Series between the Philadelphia Phillies and San Francisco Giants on October 19, 2010 at AT&T Park in San Francisco. On October 23, 2011, Deschanel performed “The Star-Spangled Banner” before game four of the World Series between the Texas Rangers and the St. Louis Cardinals at Rangers Ballpark in Arlington, Texas. Deschanel contributed a cover of Buddy Holly’s “It’s So Easy” for the tribute album Listen to Me: Buddy Holly, released on September 6, 2011. She had previously appeared on Rave On Buddy Holly, with She & Him performing “Oh, Boy!”, released in June 2011.

Deschanel signed on to star as a bubbly and offbeat teacher Jessica “Jess” Day on the Fox sitcom New Girl, created by Elizabeth Meriwether. She became a producer on the show and helped build the character, which she has described as a part of her, especially in regards to “the sort of enthusiasm and optimism” of her youth. The series premiered in September 2011, and USA Today described her performance as “a role tailored to launch her from respected indie actor to certified [television] star, Deschanel soars, combining well-honed skills with a natural charm”. She has received an Emmy Award nomination and three Golden Globe nominations for her role. The series finale ran on May 15, 2018.

A Very She & Him Christmas was announced on Pitchfork.com in September 2011. The 12-track Christmas album was released October 25, 2011, under Merge Records. On December 28, 2011, she and Joseph Gordon-Levitt recorded an informal version of “What Are You Doing New Year’s Eve?” for her HelloGiggles YouTube channel. It was immensely popular and within four days had over 6 million views. Deschanel was featured on bandmate M. Ward’s sixth solo album, A Wasteland Companion (2012).

In May 2011, after the success of her HelloGiggles YouTube channel, Deschanel, along with producer Sophia Rossi and writer Molly McAleer, founded the website HelloGiggles.com, an entertainment website geared towards women. HelloGiggles.com was acquired by Time, Inc. in 2015. In 2012, she was featured in a commercial for the iPhone 4S (Siri).

Deschanel hosted Saturday Night Live on February 11, 2012.

During a May 2012 performance at the Ryman Auditorium, country music singer Loretta Lynn announced that she was in the development stages of creating a Broadway musical from her autobiography and Deschanel would play the title role. Lynn said, “there’s a little girl back stage that’s going to do the play of ‘Coal Miner’s Daughter’ on Broadway”. She then brought Deschanel onstage and the two sang a duet of the title song. On September 21, 2012, it was announced that Deschanel was producing the comedy Must Be Nice, written by New Girl consulting producer J. J. Philbin.

She and Him’s next album, Volume 3 was released by Merge Records in May 2013. In the 15-track album, Deschanel wrote eleven songs, while three others are cover songs. It debuted at number 15 on the Billboard 200. The band’s fifth studio album, Classics, received a December 2014 release by Columbia Records, and it features 13 covers of classic songs, recorded live and accompanied by a 20-piece orchestra. Response towards the album was positive, with Robert Hamm for Alternative Press writing that Deschanel “is a delight, at times coy and romantic, and in other moments, moody and pensive”. She also appeared as a guest vocalist on Brian Wilson’s album No Pier Pressure (2015). She & Him’s second Christmas album and sixth album overall, Christmas Party, was released in 2016.

Deschanel confirmed her engagement to film producer Jacob Pechenik in January 2015, and they married in June 2015. They have two children: Elsie Otter, born in July 2015, and Charlie Wolf, born in May 2017. Deschanel and Pechenik announced their separation in September 2019. Her divorce was finalized on June 1, 2020.

Deschanel sings “The Greatest Most Beautiful Love Song in All the Land” with James Franco in the comedy Your Highness (2011). She also appears with M. Ward in a number of songs on the soundtrack album for Disney’s animated version of Winnie the Pooh (2011), earning a Grammy Award for Best Song Written for Visual Media nomination for “So Long”. Deschanel wrote and performed the theme song to New Girl. Also, in season three’s episode “Prince”, the song “Fallinlove2nite” is sung by Deschanel and Prince. In Rock the Kasbah (2015), she sang a cover of Meredith Brooks’s “Bitch”, which is featured in the soundtrack for the film. In 2016, Deschanel was the voice of Bridget, the scullery maid in the animated movie, Trolls.

Deschanel started dating Property Brothers star Jonathan Scott after her announcement of the separation from Pechenik. They met while filming an episode of Carpool Karaoke: The Series in August 2019.