Conditions gradually improved. Industry revived and expanded, particularly the grain, textile, lumber, iron, and tobacco industries. The plight of the farmers, however, remained little improved. Although Tennessee, like most Southern states after the Civil War, was overwhelmingly Democratic, bitter quarrels among Democrats resulted in occasional Republican election victories.

Tennessee was staggered by the depression of the 1930's; rural poverty and urban unemployment were widespread. Recovery was aided by state welfare and development programs and the establishment of the Tennessee Valley Authority (TVA). ( The large amount of hydroelectric power produced through the TVA was responsible for bringing to the state the federal government's Oak Ridge nuclear energy facility in 1942. Many private industries also opened plants to take advantage of the inexpensive power. After World War II, tourism became an important source of revenue.

During the 1950's and 1960's, Tennessee avoided much of the racial strife that plagued other Southern states. Its schools and public accommodations were generally peacefully desegregated. In 1962, a controversy over alleged malapportionment of the Tennessee legislature (unequal distribution of legislative seats) led to a precedent-setting decision by the U.S. Supreme Court. The Court ruled that federal courts had jurisdiction in apportionment cases (Baker v. Carr). Following federal court rulings, 1962–65, Tennessee passed reapportionment acts that gave greater political representation to its increasing proportion of city dwellers.

In the late 1960's, racial problems, mainly concerning jobs, education, and political power, began to plague the state. In 1968 civil rights leader Dr. Martin Luther King, Jr., was assassinated in Memphis, while visiting to support striking black workers. Busing of schoolchildren to achieve greater racial balance produced conflicts in several cities in the early 1970's.

In 1973 the state legislature was again reapportioned for more equitable urban-rural balance. In the 1970's, Tennessee's two largest cities—Nashville, long the home of country music, and Memphis, a center for rhythm and blues music—gained national prominence as giants of the multimillion-dollar recording industry.

In the 1980's, the economy grew, stimulated in part by foreign investments in industries in the state, and unemployment declined. Severe drought conditions in the mid-1980's seriously affected farmers. In the early 1990's, the state's economy grew faster than that of the nation as a result of an expanding automotive industry.

After many U.S. companies were criticized for outsourcing jobs to other countries, Tennessee became the first state to enact a law against it in 2004. The law directs officials to give preference for state projects to companies with workers based in the United States.