Vicious' chaotic relationship with girlfriend Nancy Spungen, and his worsening heroin addiction, caused a great deal of friction among the band members, particularly with Lydon, whose sarcastic remarks often exacerbated the situation. Lydon closed the final Sid Vicious-era Sex Pistols concert in San Francisco's Winterland in January 1978 with a rhetorical question to the audience: "Ever get the feeling you've been cheated?" Shortly thereafter, McLaren, Jones, and Cook went to Brazil to meet and record with former train robber Ronnie Biggs. Lydon declined to go, deriding the concept as a whole and feeling that they were attempting to make a hero out of a criminal who attacked a train driver and stole "working-class money".
In 1978, Lydon formed the post-punk outfit Public Image Ltd (PiL). The first lineup of the band included bassist Jah Wobble and former Clash guitarist Keith Levene. They released the albums Public Image: First Issue (1978), Metal Box (1979) and the live album Paris au Printemps (1980). Wobble left and Lydon and Levene made The Flowers of Romance (1981). It followed by This Is What You Want... This Is What You Get (1984) featuring Martin Atkins on drums (he had also appeared on Metal Box and The Flowers of Romance); it featured their biggest hit, "This Is Not a Love Song", which hit No. 5 in the UK Singles Chart in 1983.
In a 1978 interview broadcast on BBC Radio 1, Lydon alluded to the sexual abuses committed by Jimmy Savile, as well as the suppression of negative information about Savile by mainstream social forces, many decades in advance of it becoming a public scandal. Lydon stated: "I'd like to kill Jimmy Savile; I think he's a hypocrite. I bet he's into all kinds of seediness that we all know about, but are not allowed to talk about. I know some rumours." He added: "I bet none of this will be allowed out." After the interviewer suggested libel might be an issue, Lydon replied, "Nothing I've said is libel."