After having moved back to Chicago, Anderson formally divorced Cornelia. Later, he married his mistress, the sculptor Tennessee Claflin Mitchell (1874–1929). Anderson divorced Mitchell in 1924 in Reno, Nevada, and soon the same year married his third wife, Elizabeth Prall, a woman he was already involved with before the divorce.
Beginning in 1924, Sherwood and Elizabeth Prall Anderson moved to New Orleans, where they lived in the historic Pontalba Apartments (540-B St. Peter Street) adjoining Jackson Square in the heart of the French Quarter. For a time, they entertained William Faulkner, Carl Sandburg, Edmund Wilson and other writers, for whom Anderson was a major influence. Critics trying to define Anderson's significance have said he was more influential through this younger generation than through his own works.