In the show, he began experimenting with techniques that would change the way in which puppetry was used on television, including using the frame defined by the camera shot to allow the puppeteer to work from off-camera. Henson believed that television puppets needed to have "life and sensitivity," and so he began making characters from flexible, fabric-covered foam rubber, allowing them to express a wider array of emotions, at a time when many puppets were made out of carved wood. A marionette's arms are manipulated by strings, but Henson used rods to move his muppets' arms, allowing greater control of expression. Additionally, Henson wanted the muppet characters to "speak" more creatively than previous puppets, which had seemed to have random mouth movements; he used precision mouth movements to match the dialogue.

When Henson began work on Sam and Friends, he asked fellow University of Maryland freshman Jane Nebel to assist him. The show was a financial success, but after graduating from college, Jim began to have doubts about going into a career as a puppeteer. He wandered off to Europe for several months, where he was inspired by European puppeteers who looked on their work as a form of art. Henson returned to the United States and he and Jane began dating. They were married in 1959 and had five children.

Despite the success of Sam and Friends, which ran for six years, Henson spent much of the next two decades working in commercials, talk shows, and children's projects before being able to realize his dream of the Muppets as "entertainment for everybody" The popularity of his work on Sam and Friends in the late fifties led to a series of guest appearances on network talk and variety shows. Henson himself appeared as a guest on many shows, including The Ed Sullivan Show. This greatly increased exposure led to hundreds of commercial appearances by Henson characters through the sixties.

Among the most popular of Henson's commercials was a series for the local Wilkins Coffee company in Washington, D.C.,in which his Muppets were able to get away with a greater level of slapstick violence than might have been acceptable with human actors. In the first Wilkins ad, a Muppet named Wilkins (with Kermit's voice) is poised behind a cannon seen in profile. Another Muppet named Wontkins (with Rowlf's voice) is in front of its barrel. Wilkins asks, "What do you think of Wilkins Coffee?" to which Wontkins responds gruffly, "Never tasted it!" Wilkins fires the cannon and blows Wontkins away, then turns the cannon directly toward the viewer and ends the ad with, "Now, what do you think of Wilkins?" Henson later explained, "Till then, [advertising] agencies believed that the hard sell was the only way to get their message over on television. We took a very different approach. We tried to sell things by making people laugh." The first seven-second commercial for Wilkins was an immediate hit and was syndicated and reshot by Henson for local coffee companies across the United States; he ultimately produced more than 300 coffee ads. The same setup was used to pitch Kraml Milk in the Chicago, Il., area.

In 1963, Henson and his wife moved to New York City, where the newly formed Muppets, Inc. would reside for some time. Jane quit muppeteering to raise their children. Henson hired writer Jerry Juhl in 1961 and puppeteer Frank Oz in 1963 to replace her; Henson later credited both with developing much of the humor and character of his Muppets.Henson and Oz, particularly, developed a close friendship and a performing partnership that lasted 27 years; their teamwork is particularly evident in their portrayals of the characters of Bert and Ernie and Kermit and Fozzie Bear.

Henson's sixties talk show appearances culminated when he devised Rowlf, a piano-playing anthropomorphic dog. Rowlf became the first Muppet to make regular appearances on a network show, The Jimmy Dean Show. From 1964 to 1968, Henson began exploring film-making and produced a series of experimental films. His nine-minute Time Piece was nominated by the Academy of Motion Picture Arts and Sciences for an Oscar for Short Film in 1966. Jim Henson also produced another experimental film, the NBC-TV movie The Cube, in 1969.

In 1969, Joan Ganz Cooney and the team at the Children's Television Workshop asked Henson to work on Sesame Street, a visionary children's program for public television. Part of the show was set aside for a series of funny, colorful puppet characters living on the titular street. These included Oscar the Grouch, Bert and Ernie, Cookie Monster and Big Bird. Henson performed the characters of Ernie, game-show host Guy Smiley, and Kermit, who appeared as a roving television news reporter. It was around this time that a frill was added around Kermit's neck to make him more frog-like. The collar was also used to cover the joint where the neck met the body of the Muppet.

At first, Henson's Muppets appeared separately from the realistic segments on the street, but after a poor test screening in Philadelphia, Pennsylvania, the show was revamped to integrate the two and place much greater emphasis on Henson's work. Though Henson would often downplay his role in Sesame Street's success, Cooney frequently praised his work and, in 1990, the Public Broadcasting Service called him "the spark that ignited our fledgling broadcast service."The success of Sesame Street also allowed Henson to stop producing commercials. He later remembered that "it was a pleasure to get out of that world".

In addition to creating and performing Muppet characters, Henson was involved with producing various film and animation insets during the first two seasons. During the first season, Henson produced a series of counting films for the numbers 1 through 10, which always ended with a baker (voiced by Henson) falling down the stairs while carrying the featured number of desserts. For season two, Henson worked on a variety of inserts for the numbers 2-12, in a number of different styles, including film ("Dollhouse", "Number Three Ball Film"), stop-motion ("King of Eight", "Queen of Six"), cell animation ("Eleven Cheer"), and computer animation.

Concurrently with the first years of Sesame Street, Henson directed Tales From Muppetland, a short series of TV movie specials aimed at a young audience and hosted by Kermit the Frog. The series included Hey, Cinderella!, The Frog Prince, and The Muppet Musicians of Bremen. These specials were comedic tellings of classic fairy-tale stories.