Returning to film, Olmos became the first American-born Hispanic to receive an Academy Award nomination for Best Actor, in Stand and Deliver, for his portrayal of real-life math teacher, Jaime Escalante. He directed and starred in American Me in 1992, and also starred in My Family/Mi Familia, a multi-generational story of a Chicano family. He had a slight appearance in the video of the American rock band Toto, "I Will Remember" (1995), where he can be seen with actor Miguel Ferrer. In 1997, he starred alongside Jennifer Lopez in the film Selena. Olmos played Dominican Republic dictator Rafael Leónidas Trujillo in the 2001 movie In the Time of the Butterflies. He also had a recurring role as U.S. Supreme Court Justice Roberto Mendoza in the NBC drama The West Wing. From 2002 to 2004, he starred as a recently widowed father of a Hispanic L.A.-family in the PBS drama American Family: Journey of Dreams.
In 1992, a woman accused Olmos of twice touching her in a sexual manner while they watched TV and flirted together. Olmos paid the family a cash settlement of $150,000 in response to the allegations, but denied that they were true. He claimed that the settlement was in fact meant to protect his son, Bodie Olmos, not him.