Shangri-La

In March 2003 Knopfler crashed his motorcycle in Belgravia and spent seven months away from the guitar in physiotherapy. He returned to the studio in February 2004 and recorded Shangri-La at Shangri-La Studios in Malibu, with Chuck Ainlay co-producing. Knopfler wrote every song. Bob Ludwig mastered it, and it came out on 28 September 2004.

Several songs are portraits. Boom, Like That was inspired by Ray Kroc's autobiography Grinding It Out and uses many of his exact words. Song for Sonny Liston is about the boxer, Donegan's Gone is about Lonnie Donegan, and Back to Tupelo is about Elvis Presley. 5.15 AM tells the story of the 1967 one-armed bandit murder.

James Christopher Monger of AllMusic gave it three and a half stars and described a quiet collection of country-folk ballads and bluesy midtempo dirges. John Metzger of The Music Box gave it four and called it the loveliest batch of songs Knopfler had recorded since Love over Gold. The album reached number 11 in the UK, number 66 in the US and number one in Norway and New Zealand. The tour began in Johannesburg on 28 February 2005 and ended in Vancouver on 31 July, with 104 concerts in 95 cities and five nights at the Royal Albert Hall.