After taking a job with the Federal Theater Project, a Depression-era attempt to put unemployed actors back to work, he directed a revival of the Shakespeare play Macbeth featuring an entirely African-American cast. The play was a huge national success and made Welles famous at age 20.

After leaving the Federal Theater Project, Welles and John Houseman founded the "Mercury Theater Company", a group of actors with whom he frequently collaborated on stage and the radio. Their October 30, 1938 broadcast, a take-off on the H.G. Wells novel War of the Worlds, was so realistic, it fooled a number of listeners into believing the U.S. was really being invaded by extra-terrestrials.

This would be the last studio film on which Welles would retain creative control. Future projects such as The Magnificent Ambersons, The Lady From Shanghai and Touch of Evil would be recut by studios, and Welles eventually earned a reputation as a maverick who was difficult to work with, severely limiting the types of projects he would be offered and his ability to get his own films made.

In addition to his own films, Welles worked frequently as an actor. His most celebrated performance, Charles Foster Kane aside, may be in Carol Reed's post-war thriller The Third Man, in which Welles portrays the shadowy Harry Lime.