The birth of his eldest son in the late 1990s served as inspiration for the final boss of Half-Life, as the couple considered childbirth to be the most frightening thing they could think of at the time. He married Lisa Mennet (now Lisa Mennet Newell) on the same day he founded Valve with Harrington. Newell formerly suffered from Fuchs' dystrophy, a congenital disease which affects the cornea, but was cured by two cornea transplants in 20. He was also critical of Windows 8, calling it a 'catastrophe' and a threat to the open nature of PC gaming. Newell also criticized the Xbox Live service, referring to it as 'a train wreck'. Just say, 'This was a horrible disaster and we're sorry and we're going to stop selling this and stop trying to convince people to develop for it'.' Nevertheless, at Electronic Entertainment Expo in 2010, Newell appeared on stage at Sony's keynote while acknowledging his past outspoken comments on console development, he discussed the open nature of Sony's PlayStation 3 platform, and announced Portal 2 for the console, remarking that with Steamworks support it would be the best version for any console. I'd say, even at this late date, they should just cancel it and do a do-over. Newell said developing processes for the PlayStation 3 was 'a waste of everybody's time' and 'a disaster on many levels.

In 2007, Newell expressed his displeasure over developing software for game consoles. By 2011, Steam controlled 50–70% of the market for downloaded PC games and generated most of Valve's revenue. During the production of Half-Life 2 (2004), Newell spent several months developing Steam, a digital distribution service for games. Harrington left in 2000, leaving Newell as the sole owner. They funded development of the first Valve product, the first-person shooter Half-Life (1998), and its GoldSrc game engine.

Inspired by Michael Abrash, who left Microsoft to work on the game Quake at id Software, Newell and another employee, Mike Harrington, left Microsoft to found Valve in 1996. Newell later said he learned more during his first three months at Microsoft than he ever did at Harvard, which was one of the primary reasons why he dropped out. He also led development on a port of the 1993 first-person shooter game Doom for Windows 95 the port is credited for helping make Windows a viable game platform.

He spent the next 13 years working there, serving as a producer of the first three releases of the Windows operating systems. He enrolled at Harvard University in 1980 but dropped out to work for Microsoft in 1983. Newell attended Davis Senior High School in Davis, California.

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