The banjo was a staple of Martin's 1970s stand-up career and he periodically poked fun at his love for the instrument. On the Comedy Is Not Pretty! album he included an all-instrumental jam, titled "Drop Thumb Medley," and played the track on his 1979 concert tour.

In 2001, he played banjo on Earl Scruggs' remake of "Foggy Mountain Breakdown". The recording was the winner of the Best Country Instrumental Performance category at the following year's Grammys. In 2008, Martin appeared with the band, In the Minds of the Living, during a show in Myrtle Beach. In 2009, Martin released his first all-music album, The Crow: New Songs for the 5-String Banjo with appearances from stars such as Dolly Parton. The album won the Grammy Award for Best Bluegrass Album in 2010.Martin made his first appearance on The Grand Ole Opry on May 30, 2009. In the American Idol Season 8 Finals, he performed alongside Michael Sarver and Megan Joy in the song "Pretty Flowers". In June, Martin played banjo along with the Steep Canyon Rangers on A Prairie Home Companion, and began a two-month U.S. tour with the Rangers in September, including an appearances at the Hardly Strictly Bluegrass festival, Carnegie Hall and Benaroya Hall in Seattle. In November, they went on to play at the Royal Festival Hall in London with support from Mary Black. In 2010, Steve Martin and the Steep Canyon Rangers appeared at the New Orleans Jazzfest, Merlefest Bluegrass Festival in Wilkesboro, North Carolina, at Bonnaroo Music Festival, at Red Butte Garden Concert series.