In the third season, Michael once again begins searching for his runaway father. GOB gets an invitation to a father/son reunion outing, and believes it to be George Sr. trying to contact him. In reality, the invitation was meant to reunite Gob with Steve Holt, son of Eve Holt, one of GOB's former intimate partners. Meanwhile, George Michael and Maeby deal with their previous kiss by avoiding each other.

George Sr., in an attempt to remain in disguise, joined the Blue Man Group. Michael discovers this, and arranges to have his father placed under house arrest. George Sr. claims that he was set up by an underground British group. Michael goes to Wee Britain, a fictional British-themed city district, to investigate, and in the process meets new love interest Rita (Charlize Theron). Michael and the audience are led to believe that Rita is a mole for the underground British group, working for a man named "Mr. F". In the end of the episode titled "Mr. F," it is revealed that Rita is actually an MRF, or "mentally retarded female". The unknowing Michael proposes to her, and the couple run off to be wed. Michael eventually finds out the truth, however, and the two decide to end their relationship just as they are about to walk down the aisle. Meanwhile, Tobias and Lindsay variously seek legal help from Bob Loblaw (Scott Baio) concerning their troubled marriage.

In light of FOX's possible cancellation of the show, the first episode of 2006 parodied various gimmicks that other shows had used during November sweeps in 2005. Thinly-veiled allusions were made to the possibility of HBO or Showtime picking the show up in the event of its cancellation. The episode took shots at frequently cited reasons for the show's failure in the ratings, such as complex storylines that are hard to follow, obscure references that may go over viewers' heads, and unlikeable, unrelatable main characters.

Disturbed by both Lindsay's and Tobias's advances, Bob Loblaw chooses to no longer represent the Bluth family. Attorney Jan Eagleman offers to represent the family, on the condition that they participate in a mock trial in a new reality courtroom show, presided over by Judge Reinhold. Meanwhile, Maeby and George Michael perform in a mock wedding which is accidentally conducted by a real priest, and the two become legally married.

The family members are afraid to testify at the mock trial and deposition, so Buster fakes a coma, Lindsay and Lucille fake entering rehab, and GOB flees the country to perform in a USO Tour in Iraq. All of the deceptions are uncovered by the prosecution, and in Iraq, GOB is arrested for inadvertently inciting an anti-US riot. Buster and Michael travel to Iraq to rescue GOB, and while there, uncover evidence that the mini-palaces George Sr. built in Iraq were actually ordered and paid for by the CIA for wiretapping purposes. After this discovery, the US government drops all of the charges against George Sr..

To celebrate, the Bluths throw a shareholders' party on the Queen Mary. During the preparation of the party, it is revealed that Lindsay was an adopted child, meaning that George Michael and Maeby are not blood relatives. At the party, the Bluth's other adopted child, Annyong, reappears. He reveals that he is there to avenge his grandfather's deportation, an event orchestrated by Lucille Bluth. Annyong has turned over evidence implicating Lucille in the Bluth Company's accounting scandals. Before the police arrive, Michael and George Michael flee on GOB's yacht, the 'C-Word', and depart to Cabo with half a million dollars in cashier's checks, finally leaving the family to fend for themselves. However, it is revealed in the epilogue that George Sr. is also on the yacht, having lured his brother Oscar into taking his place once again. Also in the epilogue, Maeby tries to sell the television rights to the story of the Bluth family to Ron Howard, who tells her that he sees it as a movie rather than a series.

The show is highly intertextual and reflexive, features commonly associated with postmodernism. For example, Arrested Development often alludes to the past work of its cast and crew through the restaging of familiar scenarios, such as Henry Winkler's jumping the shark from Happy Days, and by casting former collaborators in small bit parts, including many cast members from Mr. Show. Guest stars frequently appear from other lauded television comedies such as Saturday Night Live, SCTV, The Daily Show, Seinfeld, Scrubs, Curb Your Enthusiasm, The Office, Upright Citizens Brigade and The Simpsons. The show willfully employs the method of theatre; Verfremdungseffekt, a type of alienation effect on the story. Most of the show's intertextual flavor comes from television culture, but there are other examples, such as the famous falling wall stunt from Buster Keaton's silent feature Steamboat Bill Jr. reenacted by Buster Bluth in the episode "The One Where They Build a House".

The show's reflexiveness may be literal or subtle. In the episode "For British Eyes Only," Michael tells George Sr., who he believes is trying to convince him of a lie, "You're a regular Brad Garrett." This is in reference to the cast member playing George Sr., Jeffrey Tambor, who had lost the Emmy for "Best Supporting Actor in a Comedy Series" to Brad Garrett right before the episode aired. The series has acknowledged its competition (Desperate Housewives), commercial sponsor (Burger King), its struggle to go after an "idiot demographic," its use of dramatic moments as act breaks, and Fox's cutback of the second season to 18 episodes. The episode "S.O.B.s" made numerous references to Arrested Development's attempts to remain on air by parodying typical television ratings ploys and hinted at the attempts of other networks to purchase the series from Fox. In addition, narrator Ron Howard has made several references to his experiences on The Andy Griffith Show and Happy Days.

David Cross was originally approached to play Buster, but opted to play Tobias so he wouldn't have to spend as much time in Los Angeles, as the role was originally intended to only be a recurring character. Due to the character's popularity during test-screenings of the pilot episode, he was given a much bigger role, and is the only actor on the show to improvise a large portion of his dialogue.

The casting for the role of GOB came down between two actors in the end — Will Arnett and Rainn Wilson (now appearing on the American version of The Office). Ultimately, the part went to Arnett.

Contrary to popular belief, almost none of the actors' lines were improvised (except the above-mentioned David Cross), and the show was very tightly scripted, with writers often on set during shoot to punch up dialogue. The actors' movements, however, are mostly improvised.

As the narrator, Ron Howard makes several references to both The Andy Griffith Show and Happy Days, on which he played Opie Taylor and Richie Cunningham, respectively.

Many of David Cross's co-stars from Mr. Show with Bob and David made brief appearances on the show, including Bob Odenkirk (as "Dr. Gunty"), Jay Johnston (as "Officer Taylor"), Jerry Minor (as "Officer Carter"), John Ennis (as "Supervisor"), Jack Black (as "man throwing darts"), and Becky Thyre (as "Loretta").

Scenes involving the Bluth Frozen Banana Stand were filmed next to the lighthouse in Fisherman's Village, Marina del Rey, California.