In March 2000, he founded Nupedia.com, "the free encyclopedia," a peer-reviewed open-content encyclopedia. On January 15, 2001, Wales and a collegue set up Wikipedia, a similar wiki-based site intended for collaboration on early encyclopedic content before submitting it to Nupedia for peer review. Wikipedia's rapid growth soon made it the dominant project and "the free encyclopedia", and Nupedia was mothballed. In mid-2003, Wales set up the Wikimedia Foundation, a non-profit organization, to support Wikipedia and its younger sister projects. Since then, he has become increasingly involved with promoting and speaking about the foundation's projects. As of 2005, Wales is the foundation's president and chairman of the board.

In 2004, Wales had been quoted as saying that he spent around US$500,000 on the establishment and operations of his Wiki projects. By the end of the foundation's February 2005 fund drive, the Wikimedia Foundation was being supported entirely by grants and donations.

Published works
Robert Brooks, Jon Corson and J. Donal Wales, "The Pricing of Index Options When the Underlying Assets All Follow a Lognormal Diffusion," in Advances in Futures and Options Research, volume 7, 1994.