Favourite Worst Nightmare

Favourite Worst Nightmare was recorded at Miloco Studios in East London with James Ford and Mike Crossey, and it was the first album with Nick O'Malley on bass. The title comes from a lyric in D Is for Dangerous: "I think you should know you're his favourite worst nightmare". The band was also considering Lesbian Wednesdays, Gordon Brown and Gary Barlow as titles. Half the songs were played live before release, and the album was recorded quickly because the band wanted to start touring. The cover is a black-and-white photograph of a house in the Garston district of Liverpool. The organ at the start of the closing track, 505, echoes Ennio Morricone's score for The Good, the Bad and the Ugly.

It went straight to number one in the UK, selling 227,993 copies in its first week, and all twelve tracks entered the top 200 of the singles chart. Brianstorm reached number two and Fluorescent Adolescent number five. In the United States it debuted at number seven on the Billboard 200. It was nominated for the 2007 Mercury Prize and won Best British Album at the 2008 Brit Awards.

Alexis Petridis in the Guardian called it the most anticipated second album in a decade, and said it would still be gripping if only Matt Helders' drumming were left. Marc Hogan at Pitchfork wrote that the band had come back tougher, sharper and bleaker.