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Pantera returned to the recording studio with Anselmo in 1999 and cut its last album, Reinventing the Steel, which was released on March 21, 2000. Steel debuted at #4 on the Billboard 200 and included "Revolution Is My Name" and "Goddamn Electric", the latter of which featured a Kerry King outro solo recorded (backstage in one take) during Ozzfest in Dallas. "Revolution Is My Name" became the band's fourth nomination for Best Metal Performance in the 2001 Grammys.

In 2000, Pantera played on the mainstage of Ozzfest alongside Ozzy Osbourne, Godsmack, Static-X, Methods of Mayhem, Incubus, P.O.D., Black Label Society, Queens of the Stone Age, and Apartment 26. In November the band cancelled their planned tour after Anselmo broke his ribs after falling during his eighth annual House of Shock event.

The band once again returned to touring and visited the United States (where they were guest musicians on the show SpongeBob SquarePants in the episode "Pre-Hibernation Week"), Canada, South Korea, Australia, and Europe. The tour in Europe was cut short, however, by the September 11, 2001 attacks which left the band stranded in Dublin, Ireland for 6 days as a result of all flights being cancelled. This would be the last time the members of Pantera performed together. Back home, the band planned to release its fourth home video in Summer 2002 and record another studio album later that year, but neither came about. 

Anselmo again engaged in numerous side projects. In March 2002, Down released its second studio album, Down II: A Bustle in Your Hedgerow, which featured Rex Brown on bass following Todd Strange's departure in 1999. Brown remains Down's full-time bassist, having appeared on their subsequent release in 2007. Also, in May of that year Anselmo's Superjoint Ritual released its debut, Use Once and Destroy. Vinnie Paul claims that Anselmo told him he would take a year off following the events of September 11, 2001 attacks, but Anselmo's touring and record output for both Superjoint Ritual and Down contradicted this. The Abbott brothers were frustrated, and held out for a time, assuming Anselmo would return. However, according to Anselmo, taking a break from Pantera was a "mutual thing" between each of the band members. 

The Abbott brothers officially broke up Pantera in 2003, also the year when their "Best Of" compilation album was released (on September 23), when the Abbott brothers concluded that Anselmo had abandoned Pantera and would not return. The break-up of the band was not amicable and subsequently a war of words was waged between the former bandmates via the heavy metal and musical press. The Abbott brothers and Pantera crew members claimed that they tried numerous times to contact Anselmo over the phone to reorganize Pantera, but Anselmo maintains that they never called him. 

Caught up in the torrent was Rex Brown, who later said "It was a bunch of he said, she said nonsense that was going on, and I wasn't going to get in the middle of it." Anselmo's comment in a 2004 issue of Metal Hammer magazine saying that "Dimebag deserves to be beaten severely" typified Pantera's internal conflicts; Anselmo insists that this comment was tongue-in-cheek, and he was angered his comment ended up on the cover of the "god damn" magazine. 

This explanation was soon dismissed by Vinnie Paul, who said shortly after the 2004 murder of his brother that he had personally listened to the audio files of the interview and that Anselmo had not been misquoted or misrepresented, but said the exact words which appeared in the article. 

In July 2004, Vulgar Display of Power went double-platinum, and The Great Southern Trendkill went platinum the next month.