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With advanced physics systems and an increased focus on story and characters, it received critical acclaim upon its release in 2004 by 2011, it had sold 12 million copies. Valve began developing Half-Life 2 six months after the release of the first Half-Life, using its new in-house engine, Source. In 2016, Valve signed a nine-floor lease in the Lincoln Square complex in downtown Bellevue, doubling the size of their offices. In 2010, the office moved to a larger location in Bellevue. In 2003, Valve moved to Bellevue, Washington, and reincorporated as Valve Corporation. Happy with Valve's success, Harrington left in 2000. They acquired the developers of one popular mod, Counter-Strike, to create a standalone Counter-Strike game.

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Valve released the software development kit (SDK) for the GoldSrc engine, facilitating numerous user-created mods.

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In 1998, Valve acquired TF Software, a group that had made the popular Team Fortress mod for Quake, and remade it for GoldSrc as Team Fortress Classic in 1999. Valve enlisted Gearbox Software to develop three expansions for Half-Life: Opposing Force (1999), Blue Shift (2001) and Decay (2001). With its realism, scripted sequences and seamless narrative, it had a lasting influence according to IGN in 2014, the history of the FPS genre 'breaks down pretty cleanly into pre- Half-Life and post- Half-Life eras'. Half-Life was released in November 1998 and was a critical and commercial success. After struggling to find a publisher, Valve eventually signed with Sierra On-Line. The development was aided by access to the Quake engine by id Software Valve modified this engine into their GoldSrc engine. Valve's first game was Half-Life, a first-person shooter (FPS) with elements of horror. Alternative names considered by Newell and Harrington include Fruitfly Ensemble and Rhino Scar. in Kirkland, Washington (about five miles from the Microsoft campus in Redmond), on August 24, 1996, Newell's wedding day. Wanting to move onto a new venture using their shared wealth, Newell and Harrington founded Valve, L.L.C. Newell had spent the prior 13 years at Microsoft developing Windows, including the Windows 95 port of Doom. Valve was founded as Valve, LLC, in 1996 by former Microsoft employees Gabe Newell and Mike Harrington. Gabe Newell (foreground) and Doug Lombardi (background), 2007

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Most of Valve's revenue comes from Steam, which controlled 50 to 70% of the market for downloaded PC games in 2011 and generated an estimated $3.4 billion in 2017. By 2012, Valve employed around 250 people and was reportedly worth over US$3 billion. They develop games through playtesting and iteration, describing game design as a kind of experimental psychology. Valve uses a flat structure, whereby employees decide what to work on themselves.

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In 2022, Valve released the Steam Deck, a portable gaming system.

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They returned to the Half-Life series in 2020 with Half-Life: Alyx, their flagship VR game. They entered the hardware market in 2015 with the Steam Machine, a line of gaming computers, which sold poorly, and released the HTC Vive and Valve Index VR headsets. Valve released fewer games in the 2010s and experimented with hardware and virtual reality (VR). In 2013, Valve released the multiplayer online battle arena game Dota 2. In 2006, Valve released Half-Life 2: Episode One, the first of two episodic sequels Episode Two followed in 2007, alongside the multiplayer game Team Fortress 2 and the puzzle game Portal. With advanced physics systems and an increased focus on story and characters, Half-Life 2 received critical acclaim and sold 12 million copies by 2011. In 2003, Valve launched Steam, followed by Half-Life 2 in 2004. Their debut game, the first-person shooter (FPS) Half-Life (1998), was a critical and commercial success with its realism, scripted sequences and seamless narrative, it had a lasting influence on the FPS genre. Valve was founded in 1996 by former Microsoft employees Gabe Newell and Mike Harrington. It is the developer of the software distribution platform Steam and the franchises Half-Life, Counter-Strike, Portal, Day of Defeat, Team Fortress, Left 4 Dead and Dota. Valve Corporation is an American video game developer, publisher, and digital distribution company headquartered in Bellevue, Washington.