When John's Children collapsed, among other problems, the band's equipment had been repossessed by their label Track Records. But Bolan, unperturbed, rallied to create Tyrannosaurus Rex, his own rock band together with guitarist Ben Cartland, drummer Steve Peregrin Took and an unknown bass player. Napier-Bell recalled of Bolan: "He got a gig at the Electric Garden then put an ad in Melody Maker to get the musicians. The paper came out on Wednesday, the day of the gig. At three o'clock he was interviewing musicians, at five he was getting ready to go on stage.... It was a disaster. He just got booed off the stage." Following this concert, Bolan pared the band down to just himself and Took, and they continued as a psychedelic-folk rock acoustic duo, playing Bolan's songs, with Took playing assorted hand and kit percussion and occasional bass to Bolan's acoustic guitars and voice. Napier-Bell said of Bolan that after the first disastrous electric gig, "He didn't have the courage to try it again; it really had been a blow to his ego... Later he told everyone he'd been forced into going acoustic because Track had repossessed all his gear. In fact he'd been forced to go acoustic because he was scared to do anything else."

The original version of Tyrannosaurus Rex released three albums and four singles, flirting with the charts, reaching as high as number fifteen. They were supported with airplay by BBC Radio 1 DJ John Peel. One of the highlights of this era was when the duo played at the first free Hyde Park concert in 1968. Although the free-spirited, drug-taking Took was fired from the group after their first American tour, they were a force within the hippie underground scene while they lasted. Their music was filled with Bolan's otherworldly poetry. In 1969, Bolan published his first and only book of poetry entitled The Warlock of Love. Although some critics dismissed it as self-indulgence, it was full of Bolan's florid prose and wordplay, selling 40,000 copies and in 1969–70 became one of Britain's best-selling books of poetry. It was reprinted in 1992 by the Tyrannosaurus Rex Appreciation Society.

In keeping with his early rock and roll interests, Bolan began bringing amplified guitar lines into the duo's music, buying a white Fender Stratocaster decorated with a paisley teardrop motif from Syd Barrett. After replacing Took with Mickey Finn, he let the electric influences come forward even further on A Beard of Stars, the final album to be credited to Tyrannosaurus Rex. It closed with the song "Elemental Child", featuring a long electric guitar break influenced by Jimi Hendrix. Bolan married his girlfriend, June Ellen Child, on 30 January 1970. She was a former secretary to the manager of another of his heroes, Syd Barrett, and June was influential in raising her new husband's profile in the music industry. Becoming more adventurous musically, Marc bought a modified vintage Gibson Les Paul guitar (featured on the cover of the album T. Rex), and then wrote and recorded his first hit "Ride a White Swan", which was dominated by a rolling hand-clapping back-beat, Bolan's electric guitar and Finn's percussion. At this time he also shortened the group's name to T. Rex.