Van Zandt was addicted to heroin and alcohol throughout his adult life. At times, he became drunk on stage and forgot the lyrics to his songs. At one point, his heroin habit was so intense that he offered Kevin Eggers the publishing rights to all of the songs on each of his first four albums for $20. At various points, his friends saw him shoot up not just heroin, but also cocaine, vodka, as well as a mixture of rum and Coke. On at least one occasion, he shot up heroin in the presence of his son J.T., who was only eight years old at the time.

As a result of Van Zandt's constant drinking, Harold Eggers, Kevin's brother, was hired as his tour manager and 24-hour caretaker in 1976, a partnership that lasted for the rest of the singer's life. Although the musician was years older than he was, Eggers later said that Van Zandt was his "first child." His battles with addiction led him into rehab nearly a dozen times throughout the 1970s and 1980s. Medical records from his recovery centers indicate that he believed his drinking had become a problem around 1973, and that by 1982 he was drinking at least a pint of vodka daily. Doctors' notes reported: "He admits to hearing voices, mostly musical voices", and "Affect is blunted and mood is sad. Judgment and insight is impaired." At various times he was prescribed the antidepressant Zoloft and the mood stabilizer lithium. The longest and final period of sobriety during his adult life was about a year in 1989 and 1990.

Van Zandt continued writing and performing through the 1990s, though his output slowed noticeably. He had enjoyed some sobriety during the early 1990s, but actively abused alcohol during his final years. In 1994, he was admitted to the hospital to detox, when a doctor told Jeanene Van Zandt that trying to detox Townes again could potentially kill him. He grew increasingly frail during the mid-1990s, with friends noting that he seemed to have "withered."

In early 1996, he was contacted by Sonic Youth's Steve Shelley, who informed Van Zandt that he was interested in recording and releasing an album for him on the band's Ecstatic Peace label, funded by Geffen. Van Zandt agreed, and sessions were scheduled to begin in Memphis during late December of that year. On December 19 or 20, Van Zandt fell down the concrete stairs outside his home, badly injuring his hip. After lying outside for an hour, he dragged himself inside and called his ex-wife Jeanene, who sent friends Royann and Jim Calvin to check on him. He told the couple that he had sustained the injury while getting out of bed, and refused medical treatment. They took him back to their home, and he spent Christmas week on their couch, unable to get up even to use the bathroom.Determined to finish the album that he had scheduled to record with Shelley and Two Dollar Guitar, Van Zandt arrived at the Memphis studio being pushed in a wheelchair by road manager Harold Eggers. Shelley canceled the sessions due to the songwriter's erratic behavior and drunkenness. Van Zandt finally agreed to hospitalization, but not before returning to Nashville. By the time he consented to receive medical care, eight days had passed since the injury. On December 31, X-rays revealed that Van Zandt had an impacted left femoral neck fracture in his hip, and several corrective surgeries were performed. Jeanene informed the surgeon that one of Townes's previous rehab doctors had told her detoxing could kill him. The medical staff tried to explain to her that detoxing a "late-term alcoholic" at home would be ill-advised, and he would have a better chance at recovering under hospital supervision. She did not heed the warnings, and checked Townes out of the hospital. Understanding that he would most likely drink immediately after leaving the hospital, the physicians refused to prescribe him any painkillers.