Arctic Monkeys wasted no time in recording new material, and released a five-track EP on 24 April 2006, entitled Who the Fuck Are Arctic Monkeys?. Due to its length, the EP was ineligible to chart as a UK single or album. Furthermore, the record's graphic language has resulted in significantly less radio airplay than previous records, although this was not a reported concern according to an insider — "since they made their name on the Internet... they don't care if they don't get radio play".

Soon after the release of the EP in the UK, the band announced that Andy Nicholson would not take part in the band's forthcoming North America tour due to fatigue from "an intensive period of touring". On returning to the UK, Nicholson confirmed that he would leave Arctic Monkeys and start his own project. He also said that he couldn't deal with the band's fame and the success over the previous six months. In a statement on their official website, the band said: "We are sad to tell everyone that Andy is no longer with the band", also confirmed that Nick O'Malley — former bassist with The Dodgems who had drafted in as temporary bassist for the tour — would continue as bassist for the rest of their summer tour schedule. Shortly after, Nick O'Malley was confirmed as the formal replacement for Nicholson.

Arctic Monkeys' first release without Nicholson, the single "Leave Before the Lights Come On", came on 14 August 2006. Turner said that the song was one of the last songs he wrote before their rise to fame, and suggested that "it feels very much like it could be on the album". Peaking at #4 in the UK, the single became the band's first failure to reach #1. The band was re-united at the Leeds Festival when Nicholson met up with his former band mates and his replacement bassist, O'Malley. Only the original band members, minus Nicholson, were present at the award ceremony when Whatever People Say I Am, That's What I'm Not won the 2006 Mercury Prize two weeks later.

The band's second album, Favourite Worst Nightmare, was released on 23 April 2007, a week after the release of accompanying single "Brianstorm". Turner described the songs as "very different from last time", adding that the sound of some tracks are "a bit full-on - a bit like "From the Ritz to the Rubble", "The View from the Afternoon", that sort of thing." A secret gig played at Sheffield's Leadmill on 10 February 2007, debuted seven new songs (six from Favourite Worst Nightmare and one other). Early reviews of the release were positive, and described it as "very, very fast and very, very loud."

Meanwhile, the band continued to pick up awards from around the world, namely the 'Best New Artist in the United States' at the PLUG Independent Music Awards, the "Album of the Year" awards in Japan, Ireland and the US, awards for "Best Album" and "Best Music DVD" at the 2007 NME Awards. They ended the year by clinching the "Best British Band" and "Best British Album" at the 2008 BRIT Awards. For the second year in a row, the band were nominated for the annual Mercury Prize, although they failed to match their feat of 2006 after the award went to Klaxons' Myths of the Near Future.

On 29 April 2007, the day Favourite Worst Nightmare charted at #1 in the UK Albums Chart, all 12 tracks from the album charted in the Top 200 of the UK Singles Chart. On 27 April 2007 they had a total of 18 tracks in the Top 200. "Fluorescent Adolescent" and "505" charted in the Top 75, at #60 and #74 respectively.

The third single from Favourite Worst Nightmare, "Teddy Picker", was released on 3 December 2007. It charted at #20 and remained only one week in the top 40 staying in this position, making it the lowest charting single for the band so far. Prior to this release the band released an extremely limited number of 250 vinyl under the pseudonym Death Ramps containing two of the b-sides from the "Teddy Picker" single.

Arctic Monkeys headlined the Glastonbury Festival on 22 June 2007, the highlights of which were aired on BBC2. During their headline act, the band performed with Dizzee Rascal and covered Shirley Bassey's "Diamonds Are Forever". The band also played a large gig at Dublin's Malahide Castle on 16 June 2007, with a second date added the following day. The band was also slated to play the Austin City Limits Music Festival in September 2007. Other European festivals include Rock Werchter in 2007. The band played two shows at Cardiff International Arena on 19 June and 20 June 2007 supported by local friends of the band, Reverend and the Makers. They also played two London gigs at Alexandra Palace on the 8 and 9 December 2007.

The band recorded a total of 24 songs; 12 in the Rancho De La Luna recording sessions with Josh Homme in early Autumn, 2008, and 12 in the New York sessions with James Ford in Spring, 2009, following their January tour of New Zealand and Australia. During this tour, lead single Crying Lightning, along with Humbug songs "Pretty Visitors", "Dangerous Animals", and "Potion Approaching" (then known as "Go-Kart"), was debuted live. It was later revealed by Matt Helders in a video diary that the album would consist of 14 tracks and that Alex Turner would stay in New York to oversee the mixing of the material. However, the final tracklisting, revealed on 1 June 2009, listed only 10.