Lee also decided to leave Mötley Crüe during his stay in prison, and stuck to his promise after the completion of the Crüe's Greatest Hits tour in 1999. With the popularity of rap metal, Lee formed a band called Methods of Mayhem. The band released a self-titled album the same year and toured in support of it.

Although Lee distanced himself from Mötley Crüe after splitting, he agreed to take part in their 2001 autobiography, The Dirt. In addition to Mötley Crüe and Methods of Mayhem, Lee has made guest appearances on albums by other artists, such as Stuart Hamm, Nine Inch Nails and Rob Zombie. He also contributed a solo song, "Welcome to Planet Boom" to the soundtrack of then-wife Pamela Anderson's 1996 movie, Barb Wire, and produced an album for the pre-Goldfinger project from John Feldmann and Simon Williams, the Electric Love Hogs.

Also in 2001, four-year-old Daniel Karven-Veres drowned at Lee's Malibu, California, home during a birthday party for Lee's son Brandon. On April 17, 2003, a Superior Court jury took less than three hours to reject a wrongful death claim made by Daniel's parents, German actress Ursula Karven and TV producer James Veres. The suit accused Lee of negligence for failing to have a lifeguard or someone trained in CPR present during the birthday party.

Lee parted ways with Methods of Mayhem partner Tilo and began recording with members of Incubus. Shortly after, he started recording songs featuring himself almost exclusively, and he ended up releasing his first solo album. The album, 2002's Never a Dull Moment, had tones of rap metal and electronica, and featured little of the Mötley Crüe sound he was famous for.