After a disappointing 2006-07 season, the Heat looked to move forward. Miami retained the 20th and 39th pick in the 2007 NBA Draft. On June 28, 2007, the Miami Heat selected Colorado State forward Jason Smith with the 20th overall selection then traded him to the Philadelphia 76ers for the draft rights to 21st overall selection, guard Daequan Cook from Ohio State and cash considerations. With the 39th overall selection, the Miami Heat drafted Stanko Barac, a center from Bosnia, but later traded his rights to the Indiana Pacers for a future second round pick. The Heat lost Jason Kapono to the Toronto Raptors and James Posey to the Boston Celtics. The Heat got a much-needed point guard when they picked up Smush Parker from free agency and signed him to a 3-year deal and veteran guard Penny Hardaway reuniting the Shaq-Penny duo. Hardaway was later waived in December. Also in the 2007 Offseason, the Miami Heat made a 5 player trade with the Minnesota Timberwolves, bringing back Ricky Davis and Mark Blount. Leaving the Heat was Antoine Walker, Wayne Simien, Michael Doleac, and a conditional 1st round pick. Davis was on the Heat in August 2000 but fell out of favor with Riley. When the trade occurred he was seen as a more polished scorer and was projected to have been third option for the Heat to compliment Dwyane Wade and Shaquille O'Neal, had the circumstances of the season turned out differently.

On December 19, 2007 during the 1st quarter of the game versus the Atlanta Hawks while getting back on a fast-break, Alonzo Mourning tore the right patellar tendon in his right knee and was required to undergo a season-ending -- some even say career-ending knee surgery, although Mourning maintains that he has not, nor has he made plans for retirement.

On Tuesday, February 5th, 2008, ESPN reported that the Heat were interested in trading center Shaquille O'Neal, contrary to reports by Pat Riley one month earlier that the Heat was not interested in trading the 13 time all-star. The next day however, the Heat agreed to trade O'Neal to the Phoenix Suns for Shawn Marion and Marcus Banks, effectively ending the Wade-Shaq era.

As of April 16, 2008 the Heat clinched the worst record in the NBA at 15-67. Despite the recent losing funk the Heat have fallen into, they have re-committed themselves to rebuild and turn the franchise around and get it back to the level it was just 2 years ago when they won the 2006 championship, and are projected by many to possibly have a busy 2008 offseason due to the fact that they could possibly have plenty of free salary cap room with the departure of O'Neal and now that they are looking towards the future and to build around superstar Dwyane Wade. Wade has also adamantly committed himself to the rebuilding plan and has said in a public statement that he's in Miami for the longhaul and wants to be part of the rebuilding process currently taking place, since it was his drafting in the 2003 draft that helped turn the franchise around at that time. Late in the season with the HEAT well out of any type of realistic playoff contention, head coach Pat Riley missed two games because he went to scout certain NCAA basketball conference tournament games, to prepare in the likely event that the heat receive the number 1 or 2 lottery pick in the 2008 draft. It was announced on March 10, 2008, that Heat guard Dwyane Wade would be inactive for the rest of the season to help him rehabilitate his ailing knee and shoulder that he has re-aggravated, in hopes of starting in the 2008 Olympic games in Beijing. It was announced on March 10 that the Heat have finally waived guard Smush Parker, opening the opportunity to add a player signed to a 10-day contract. Parker has not seen action in a Heat uniform and has been in Pat Riley's "doghouse" since the first few games of the 07-08 season after he got into a dispute and altercation with a Valet Parking attendant who accused him of not paying the parking fee, Miami Police are still looking into the matter. On March 12, 2008, they signed Bobby Jones to a 10-day contract, looking for help at the shooting guard and small forward positions. At the end of March 2008, as if the season had not gone bad enough, the Miami Heat posted the third lowest point total in the history of the NBA during the shot clock era during a 96-54 loss to the Toronto Raptors on March 19, followed by a new record for the fewest made baskets (17) in another lost game against the Boston Celtics on March 30.The Heat finished the season on a positive note on April 16 to close out the season with a 113-99 victory over the playoff bound Atlanta Hawks. The win ties for the worst franchise record set by the 1988-89 heat On April 28, 2008, Pat Riley stepped down as the head coach of the Heat but remained Team President. He replaced himself with longtime Assistant Coach Erik Spoelstra, who at 37, became the youngest coach in the NBA. Riley finished his career with 1,210 victories, third all-time behind Lenny Wilkens and Don Nelson.