His early works were of classical themes in the spirit of Sir Lawrence Alma-Tadema and Frederic Leighton, and were exhibited at the Royal Academy, the Society of British Artists and the Dudley Gallery. In the late 1870's and the 1880's, Waterhouse made several trips to Italy, where he expanded his creative horizons by studying the Italian master's and painting genre scenes. In 1883 Waterhouse married Esther Kenworthy and took up residence at the Primrose Hill Studios. In this same year he was elected to the Royal Institute of Painters in Watercolour (though he painted primarily in oils) he remained a part of the group for six years until resigned in 1889. In 1884, his Royal Academy submission Consulting the Oracle brought him favourable reviews; it was purchased by Sir Henry Tate, who also purchased The Lady of Shalott from the 1888 Academy exhibition. The latter painting reveals Waterhouse's growing interest in themes associated with the Pre-Raphaelites, particularly tragic or powerful femmes fatales, as well as plein-air painting.

In 1885 Waterhouse was elected an associate of the Royal Academy and became a full member ten years later in 1895. Around this same time Waterhouse began exhibiting with the Grosvenor Gallery and its successor, the New Gallery, as well as at provincial exhibitions in Birmingham, Liverpool and Manchester. Paintings of this period were exhibited widely in England and abroad as part of the international symbolist movement and began giving Waterhouse a solid reputation as an artist. In the 1890's Waterhouse began to exhibit his portraiture and by 1900 was considered one of the top portrait artists in London.

In 1901 he moved to St. John's Wood and joined the St. John's Wood Arts Club, a social organization that included Alma-Tadema and George Clausen. He also served on the advisory council of the St. John's Wood Art School where young and upcoming "neo Pre-Raphaelite" artists such as Byam Shaw numbered amongst his pupils. Little is known of Waterhouse's private life and even the identities of his favourite models, who appear so frequently in his paintings, are not known for certain. He was a prolific painter however and never stopped creating, even despite suffering from increasing frailty during the final decade of his life. Waterhouse continued painting until his death from cancer in 1917. From 1908-1914 he painted a series of paintings based upon the Persephone legend. They were followed by pictures based upon literature and mythology in 1916 (Miranda, Tristram and Isolde). One of his final works was The Enchanted Garden, left unfinished at his death, and now in the collection of the Lady Lever Art Gallery in Liverpool. It shows his favourite model, recently identified by Waterhouse researchers as Miss Muriel Foster.

Waterhouse and his wife Esther did not have any children. Esther Waterhouse outlived her husband by 27 years, passing away in 1944 at a nursing home. Today, she shares her husband's grave at Kensal Green Cemetery in north London. .