George Harrison first mentioned the Traveling Wilburys during a radio interview with Bob Coburn on the Rockline radio station in February 1988. When asked what he planned to do as a follow-up for his Cloud Nine album, Harrison replied: "What I'd really like to do next is... to do an album with me and some of my mates... a few tunes, you know. Maybe The Traveling Wilburys... it's this new group I got: it's called the Traveling Wilburys, I'd like to do an album with them and later we can all do our own albums again. "Wilbury" was a slang term first used by Harrison during the recording of Cloud Nine with Jeff Lynne. Referring to recording errors created by some faulty equipment, Harrison jokingly remarked to Lynne, "We'll bury 'em in the mix". Thereafter, they used the term for any small error in performance and the term was used again when the group were together. Harrison suggested "The Trembling Wilburys" as the group's name; instead, Lynne suggested "Traveling", with which the group agreed.
Starting with a meal among Harrison, Lynne and Roy Orbison, the group came together at Bob Dylan's home studio in Malibu, California, to record an additional track as a B-side for the single release of Harrison's "This Is Love". Tom Petty's involvement came by chance, as Harrison had left his guitar at Petty's house and Harrison went to get it and Petty came back with him. The record label, however, decided that the song that resulted, "Handle with Care", was too good to be released as a "single filler". The members enjoyed working together so much that they decided to create a full album together. Traveling Wilburys Vol. 1. Written by all five men, it was recorded over a ten-day period in May 1988, and released on October 18. The album was recorded in the house and garden of Eurythmics member Dave Stewart. The "Wilburys" joke was extended further, with the band members credited under various pseudonyms and pretending to be half-brothers – sons of a fictional Charles Truscott Wilbury, Sr. The album was a critical and commercial success, spawning several successful singles and eventually reaching triple-platinum sales status in the US. The album was nominated for several awards and won the Grammy Awardfor Best Rock Performance by a Duo or Group in 1989. Liner notes on the album cover were written by Michael Palin under a pseudonym. On the second album they were written by Eric Idle under a pseudonym
Roy Orbison died of a heart attack on December 6, 1988. In tribute to Orbison, the music video for "End of the Line" shows Orbison's guitar rocking in a chair as the rest of the group play, followed by a brief shot focusing on a framed picture of him. Despite Orbison's death, the remaining group members recorded a second and final studio album, which they intentionally misnumbered Traveling Wilburys Vol. 3. It was released on October 30, 1990, and met with less success than the previous one. In the booklet contained in the 2007 box set, the album title is credited to "George being George" apparently Harrison was making a wry reference to the appearance of a bootleg that served as a sort of Volume 2.