Panic at the Disco (formerly known as Panic! at the Disco) were formed in Summerlin, Las Vegas, by childhood friends Ryan Ross (guitar) and Spencer Smith (drums). From the age of 13, the duo played Blink 182 covers, initially a band called Pet Salamander, but then they created Summer League with friend Brent Wilson. Wilson met Brendon Urie at Palo Verde High School, and asked him to try out as guitarist for the fledgling band. However, when they heard Urie sing backup vocals during a rehearsal, they were impressed with his vocal abilities and unanimously decided to make him the singer. The band then settled on the name Panic! at the Disco, lifting the name from the lyrics of a song called "Panic" by Name Taken. In order to promote their music, the band contacted Fall Out Boy bassist Pete Wentz through LiveJournal, and sent him an internet link to their PureVolume site. Wentz took a trip to Las Vegas to meet the band, and after seeing them practice, asked if they would sign with his Fueled by Ramen imprint label Decaydance.

Panic! at the Disco released their debut album ”A Fever You Can’t Sweat Out” in September 2005, building a fan base through PureVolume and MySpace, despite a lack of commercial recognition. After a consistent presence in PureVolume's Top 10 signed artists, and reaching number 1 on MySpace's indie charts, Panic! at the Disco were featured on MTV's “Total Request Live” in January 2006, premiering their music video for "I Write Sins Not Tragedies." The video debuted at number 10 on the TRL countdown, and later won “Video of the Year” at the 2006 MTV Video Music Awards. The single itself, released in April 2006, got to number 7 in the US charts. Second single, "But It's Better If You Do" was released in the UK in May 2006 where it debuted, and peaked, at number 23. However, that month also saw the band officially announce the departure of bassist, Brent Wilson. Just days after Wilson's departure, the band embarked on their first headlining tour through Europe, with long-time friend, Jon Walker, filling in as temporary bassist for the summer tour while a permanent replacement was sought. In July, the band's MySpace profile was edited to list Walker as bassist/vocals, and he became a permanent member of Panic at the Disco.
The success of the first 2 singles helped catapult ”A Fever You Can’t Sweat Out” to the top of the Billboard Independent chart and to number 13 on the Billboard 200 in July 2006, and the following month, it went platinum, having sold over a million copies. Its worldwide sales now stand at over 2.2 million copies. Also that year the band appeared along with artists such as Fall Out Boy and MaMarilyn Manson on the special edition soundtrack of Tim Burton's “The Nightmare Before Christmas”, covering "This Is Halloween".

In early 2007, Panic at the Disco began writing their follow up album, but decided to rewrite the entire album from scratch in July 2007, because, in the words of Ross, ‘it sounded like a film score’. In January 2008, the exclamation mark in the band's name was dropped, saying ‘It was never part of the name to us. When we started doing new promo stuff for this album, we just told everyone not to use it anymore’. “Pretty. Odd.” hit number 2 on both the UK and US Album charts in March 2008, selling 139,000 copies in its first week, and also debuted at number 1 in Australia.