Rawal made his debut with the 1984 film Holi. He then appeared in over 100 films throughout the 1980s and 1990s. Paresh Rawal's biggest hit was Hera Pheri (2000 film).

Before he attained national recognition, in 1991 Rawal achieved recognition and adulation for his role of a bank robber in Kshana Kshanam. His quirky accent and mannerisms made him an instant hit. He acted in quite a few Telugu films by the RGV school of direction like Money and Govinda Govinda.

In 1994, he won the National Film Award for Best Supporting Actor for his performances in the films Woh Chokri and Sir. For the latter, he also received his first Filmfare Award for Best Comedian. This was followed by Ketan Mehta's Sardar, which saw him playing the lead role of freedom fighter Vallabhbhai Patel, a role that got him not only national but international acclaim. He followed it with the film Tamaana (1996), in which he played the role of a hijra (person of "third" gender, typically male transgender) who raises a young, orphaned girl, played by Pooja Bhatt.

In 2000, Rawal played a dim-witted and boisterous, but kind-hearted Marathi landlord Baburao Ganpatrao Apte in the film Hera Pheri, who takes in Raju (Akshay Kumar) and Shyam (Sunil Shetty) as paying guests in his house. Rawal's acting was a key reason for the major nationwide success the film received.[2] For his performance, he won the Filmfare Best Comedian Award. He reprised his role as Baburao in the sequel to the film, Phir Hera Pheri (2006), which was also successful.

In 2002, Rawal portrayed one of three blind bank robbers in the hit film Aankhen. Rawal has since played many comedy roles in successful films including Awara Paagal Deewana (2002), Garam Masala (2005), Deewane Huye Pagal (2005), Malamaal Weekly (2006), Golmaal (2006), Chup Chup Ke (2006) , Bhagam Bhag (2006), Shankar Dada MBBS and De Dana Dan (2009). He is also produced the Hindi Serials including Zee TV's Teen Bahuraaniyaan, Sahara One's Main Aisi Kyunn Hoon.