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In 1997, under the name Puff Daddy, Combs recorded his first commercial vocal work as a rapper. His debut single, "Can't Nobody Hold Me Down", spent 28 weeks on the Billboard Hot 100 chart, peaking at number one.His debut album, No Way Out, was released on July 22, 1997,through Bad Boy Records. Originally titled Hell up in Harlem, the album underwent several changes after the Notorious B.I.G. was killed on March 9, 1997. Several of the label's artists made guest appearances on the album. No Way Out was a significant success, particularly in the United States, where it reached number one on the Billboard 200 in its first week of release, selling 561,000 copies.

The album produced five singles: "I'll Be Missing You", a tribute to the Notorious B.I.G., was the first rap song to debut at number one on the Billboard Hot 100; it remained at the top of the chart for eleven consecutive weeks and topped several other charts worldwide. Four other singles – "Can't Nobody Hold Me Down", "It's All About the Benjamins", "Been Around the World", and "Victory" – were also released. Combs collaborated with Jimmy Page on the song "Come with Me" for the 1998 film Godzilla.

The album earned Combs five nominations at the 40th Grammy Awards in 1998, and would go on to win the Grammy Award for Best Rap Album.On September 7, 2000, the album was certified septuple platinum by the Recording Industry Association of America for sales of over 7 million copies.In 1997, Combs was sued for landlord neglect by Inge Bongo. Combs denied the charges. By the late 1990s, he was being criticized for watering down and overly commercializing hip hop, and for using too many guest appearances, samples, and interpolations of past hits in his new songs.
In April 1999, Combs was charged with assaulting Steve Stoute of Interscope Records. Stoute was the manager for Nas, with whom Combs had filmed a video earlier that year for the song "Hate Me Now". Combs was concerned that the video, which featured a shot of Nas and Combs being crucified, was blasphemous. He asked for his scenes on the cross to be pulled, but after the video aired unedited on MTV on April 15, Combs visited Stoute's offices and injured Stoute. Combs was charged with second-degree assault and criminal mischief, and was sentenced to attend a one-day anger management class.

Forever, Combs' second solo studio album, was released by Bad Boy Records on August 24, 1999, in North America, and in the UK on the following day. It reached number two on the Billboard 200 and number one on the Top R&B/Hip-Hop Albums chart, where it remained for one week before being knocked off by Mary J. Blige's fourth album, Mary. The album received positive to mixed reviews from music critics and spawned three singles that have charted on the Billboard charts. It peaked at number four on the Canadian Albums Chart, Combs' highest-charting album in that country
On December 27, 1999, Combs, his then-girlfriend Jennifer Lopez, and his protégé rapper Shyne were at Club New York in Times Square in Manhattan when gunfire broke out. A prosecutor said that the incident was sparked by an argument at the club between Combs and another patron.After a police investigation, Combs and Shyne were arrested for weapons violations and other charges.Combs was charged with four weapons-related charges and with bribing his driver, Wardel Fenderson, to claim ownership of his gun.

With a gag order in place, the highly publicized trial began. Combs' attorneys were Johnnie L. Cochran Jr. and Benjamin Brafman. Combs was found not guilty on all charges; Shyne was convicted on five of his eight charges and sentenced to ten years in prison. Combs and Lopez broke up shortly after. A lawsuit filed by Fenderson, who said he suffered emotional damage after the shooting, was settled in February 2004. Lawyers for both sides, having agreed to keep the settlement terms secret, said the matter had been "resolved to the satisfaction of all parties".
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