Despite missing the playoffs in back-to-back seasons for the first time since the 80's, the 2007-2008 season displayed many signs of growth in the team, especially towards the end of the season. Off-court legal distraction from Jamaal Tinsley, Marquis Daniels, and Shawne Williams in the middle of the season did not help the Pacers struggles, and injuries to Tinsley and Jermaine O'Neal damaged the Pacers' already weak defense and left almost all point guard duties to recently acquired Travis Diener, who saw minimal minutes on his previous NBA teams. Despite this, and a 36-46 record, the Pacers had a very strong finish to the season, which included a desperate attempt to steal the 8th seed from the Atlanta Hawks, and dramatic improvement in forwards Danny Granger and Mike Dunleavy. Both Granger and Dunleavy were involved in the voting for Most Improved Player, with Dunleavy finishing in the top 10. The two were also the first Pacer pair to score 1500 points each in a single season since Reggie Miller and Detlef Schrempf did it in the early 90s. With this, and a much improved defensive effort with the return of Jermaine O'Neal, the Pacers can see only positive in the future of the franchise.

In April of the 2007-2008 Season, Pacers GM since 1984 Donnie Walsh left the Pacers to join the New York Knicks. All of Walsh's duties were given to Pacers' President Larry Bird.