In 1860 the James family returned to Newport. There Henry became a friend of the painter John La Farge, who introduced him to French literature, and in particular, to Balzac. James later called Balzac his “greatest master,” and said that he had learned more about the craft of fiction from him than from anyone else. James’ orphaned cousins, The Temple sisters, came to live with them in Newport.

In the autumn of 1861 Henry received an injury, probably to his back, while fighting a fire. This injury, which resurfaced at times throughout his life, made him unfit for military service in the American Civil War.

In The Portrait of a Lady (1881) James concluded the first phase of his career with a novel that remains his most popular piece of long fiction. The story is of a spirited young American woman, Isabel Archer, who “affronts her destiny” and finds it overwhelming. She inherits a large amount of money and subsequently becomes the victim of Machiavellian scheming by two American expatriates. The narrative is set mainly in Europe, especially in England and Italy. Generally regarded as the masterpiece of his early phase, The Portrait of a Lady is described as a psychological novel, exploring the minds of his characters, and almost a work of social science, exploring the differences between Europeans and Americans, the old and the new worlds. The character of Isabel Archer is a imagined resurrection of Minnie Temple who died of Tuberculosis as a young woman. Helena was so fictionalized as Isabel’s friend.

The second period of James’s career, which extends from the publication of The Portrait of a Lady through the end of the nineteenth century, features less popular novels including The Princess Casamassima, published serially in The Atlantic Monthly in 1885–1886, and The Bostonians, published serially in The Century Magazine which was edited by Helena’s husband during the same period. This period also featured James’s celebrated Gothic novella, The Turn of the Screw.

The third period of James’s career reached its most significant achievement in three novels published just around the start of the 20th century: The Wings of the Dove (1902), The Ambassadors (1903), and The Golden Bowl (1904). Critic F. O. Matthiessen called this “trilogy” James’s major phase, and these novels have certainly received intense critical study. It was the second-written of the books, The Wings of the Dove (1902) that was the first published because it attracted no serialization. This novel tells the story of Milly Theale, an American heiress stricken with a serious disease, and her impact on the people around her. Some of these people befriend Milly with honourable motives, while others are more self-interested. James stated in his autobiographical books that Milly was based on Minnie Temple, his beloved cousin who died at an early age of tuberculosis. He said that he attempted in the novel to wrap her memory in the “beauty and dignity of art”.

James traveled back and forth from Europe and England and New York City and several of his novels have settings based on the Gilders’ homes and the Gilders themselves.