After snagging small roles in movies and television, he collaborated with playwright Beth Henley and Talking Heads front man David Bryne to write the small-town comedy True Stories (1986) and appeared the following year in Spaceballs, playing the commander of Dark Helmet's guard. Memorable roles followed in high-profile films such as Mississippi Burning (1988), Sneakers (1992), Basic Instinct (1992) and Groundhog Day (1993), in which Tobolowsky delivered one of his most recognizable characters to date as insurance salesman Ned Ryerson.

More recent film work includes The Insider (1999), Memento (2000), Adaptation (2002) and Stephen Tobolowsky's Birthday Party (2006), a documentary about his experiences in Hollywood.