XO

Early sessions took place at Larry Crane's Jackpot Recording Studio after Either/Or. Work began in earnest in early 1998 in Los Angeles with Rob Schnapf and Tom Rothrock. One working title was Grand Mal. Smith played guitar, piano, bass, drums, organ, mandolin, electric piano, melodica and percussion himself and arranged the strings and horns, and Joey Waronker and Jon Brion also played on it. The opener Sweet Adeline takes its name from his grandmother's glee club, Sweet Adelines International.

In his Sunday Review for Pitchfork in 2023, Jayson Greene described it as a transformational landmark and a logical next step. He reported that Smith had told Lenny Waronker he wanted to use an orchestra, and that Everybody Cares, Everybody Understands began life as a rocker called Catholic in his high-school band. Mark Richardson of Pitchfork wrote in his review that it displayed his mastery of the pop song structure more clearly than ever. It placed fifth in the Village Voice's 1998 Pazz and Jop poll and peaked at 104 on the Billboard 200 and 123 in the UK. The singles were Waltz #2 (XO) in 1998 and Baby Britain in 1999. Spin put it at 90 on its list of the 125 best albums in its lifetime, and Matthew LeMay wrote a book about it in the 33 1/3 series in 2009. RJD2 sampled I Didn't Understand on Ghostwriter.