McCarthy's works include performance, installation, film and "painting as action". His points of reference are rooted, on the one hand, in things typically American, such as Disneyland, B-Movies, Soap Operas and Comics – he is a critical analyst of the mass media and consumer-driven American society and its hypocrisy, double standards and repression. On the other hand, it is European avant-garde art that has had the most influence on his artistic form language. Such influences include the Lost Art Movement, Joseph Beuys, Sigmund Freud and Samuel Beckett and particularly the Viennese Actionism. Although by his own statement the happenings of the Viennese Actionists were known to him in the 1970s, he sees a clear difference between the actions of the Viennese and his own performances: "Vienna is not Los Angeles. My work came out of kids' television in Los Angeles. I didn't go through Catholicism and World War II as a teenager, I didn't live in a European environment. People make references to Viennese art without really questioning the fact that there is a big difference between ketchup and blood. I never thought of my work as shamanistic. My work is more about being a clown than a shaman." In his early works, McCarthy sought to break the limitations of painting by using the body as a paintbrush or even canvas; later, he incorporated bodily fluids or food as substitutes into his works. In a 1974 video, Painting, Wall Whip, he painted with his head and face, "smearing his body with paint and then with ketchup, mayonnaise or raw meat and, in one case, feces." This clearly resembled the work of Vienna actionist Günter Brus. Similarly, his work evolved from painting totransgressive performance art, psychosexual events intended to fly in the face of social convention, testing the emotional limits of both artist and viewer. An example of this is his 1976 piece Class Fool, where McCarthy threw himself around a ketchup spattered classroom at the University of California, San Diego until dazed and self-injured. He then vomited several times and inserted a Barbie doll into his rectum. The piece ended when the audience could no longer stand to watch his performance. Concerned that the University's custodians would have to clean up the mess, graduate students Virginia Maksymowicz and Blaise Tobia, along with art historian Moira Roth, spent several hours cleaning up the ketchup and vomit. Maksymowicz can be seen in the rear left of a documentary photo of the event.
McCarthy's work in the 1990s, such as Painter (1995), often seeks to undermine the idea of "the myth of artistic greatness" and attacks the perception of the heroic male artist.
McCarthy’s transfixion with Johanna Spyri’s novel Heidi led to his 1992 video and installation, Heidi: Midlife Crisis Trauma Center and Negative Media-Engram Abreaction Release Zone, which he collaborated on with Mike Kelley.
During the summer of 2008, Paul McCarthy’s inflatable “Complex Shit”, installed on the grounds of the Paul Klee Centre in Bern, Switzerland, took off in a wind bringing down a power line, breaking a greenhouse window, and broke a window at a children’s home. This incident was widely reported internationally via news outlets in several languages with headlines like “Huge turd catastrophe for museum” and “Up in the sky: is it a turd or a plane?”
McCarthy has created several Christmas-themed works. Through them, he combines the dismal aesthetic and the real meaning of Christmas. In 2001 he created 'Santa Claus' for the city of Rotterdam in the Netherlands. Originally it intended to be placed next to the concerthall at the locally famous square 'Schouwburgplein', but it never was. This was due to controversies around the statue (the work is seen by many citizens to have a sexual connotations, and therefore it also is colloquially referred to as 'Butt Plug Gnome'), and besides the original location it was also rejected by (citizens and retailers of) several other proposed locations. On the 28th of November 2008 did it, however, receive a permanent destination: the square Eendrachtsplein, within a walkway of statues project.
In November 2009, an exhibition called “White Snow” was held at Hauser & Wirth New York, featuring McCarthy’s mixed-media works centered on the character Snow White from Disney’s Snow White and the Seven Dwarves