Career revival in the 2000s

In the 2000 New Year's Honours, despite Andrews's long exile in the United States and Switzerland, she was made a Dame Commander of the British Empire (DBE). She also appears in the 2002 List of 100 Greatest Britons" sponsored by the and chosen by the public.
In 2001, Andrews received Kennedy Center Honors. The same year, she reunited with Sound of Music costar Christopher Plummer in a live television performance of On Golden Pond.

In 2001, Andrews appeared in The Princess Diaries, her first Disney film since 1964's Mary Poppins. The film, in which she starred as Queen Clarisse Marie Renaldi opposite Anne Hathaway, was a box office success and was followed by a sequel, The Princess Diaries 2(2004). In The Princess Diaries 2, Andrews sang on film for the first time since her throat surgery. The song, "Your Crowning Glory", was set in a limited range of an octave to accommodate Andrews' recovering voice. The film's music supervisor Dawn Soler recalled that Andrews "nailed the song on the first take. I looked around and I saw grips with tears in their eyes."

Andrews continued her association with Disney when she appeared as Nanny in two 2003 made-for-television movies based on the Eloise books, a series of children's books by Kay Thompson about a child who lives in the Plaza Hotel in New York City. Eloise at the Plaza premiered in April 2003, and Eloise at Christmastime was broadcast in November 2003. The same year, Andrews made her debut as a theatre director, directing a revival of The Boyfriend, the musical in which she made her Broadway debut, at the Bay Street Theatre in Sag Harbor, New York. Her production, which featured costume and scenic design by her former husband Tony Walton, was remounted at the Goodspeed Opera House in 2005 and went on a national tour in 2006.

From 2005 to 2006, Andrews served as the Official Ambassador for Disneyland's 18 month-long, 50th anniversary celebration, the Happiest Homecoming on Earth", traveling to promote the celebration and recording narration or appearing at several events at the park.

In 2004, Andrews performed the voice of Queen Lillian in the animated blockbuster Shrek 2 (2004), reprising the role for its sequel, Shrek the Third (2007). Later in 2007, she narrated Enchanted, a live-action Disney musical comedy that paid homage to classic Disney films such as Mary Poppins.

In January 2007, she was honored with the Lifetime Achievement Award at the Screen Actors Guild's awards, and stated that her goals including continuing to direct for the stage, and possibly to produce her own Broadway musical. She will publish Home: A Memoir of My Early Years, which she characterized as "part one" of her autobiography, on April 1, 2008. Home will chronicle her early years in England's Music Hall circuit, and end with her winning the role of Mary Poppins.