In 1972, using money earned from his record store, Branson launched the record label Virgin Records with Nik Powell. The name "Virgin" was suggested by one of Branson's early employees because they were all new at business. Branson bought a country estate north of Oxford in which he installed a residential recording studio, The Manor Studio. He leased studio time to fledgling artists, including multi-instrumentalist Mike Oldfield, whose debut album Tubular Bells (1973) was the first release for Virgin Records and became a chart-topping best-seller.

Virgin signed controversial bands such as the Sex Pistols, which other companies were reluctant to sign. Virgin Records would go on to sign other artists including the Rolling Stones, Peter Gabriel, XTC, Japan, UB40, Steve Winwood and Paula Abdul, and to become the world's largest independent record label. It also won praise for exposing the public to such lesser known avant-garde music as Faust and Can. Virgin Records also introduced Culture Club to the music world.

Branson's net worth was estimated at £5 million by 1979, and a year later, Virgin Records went international.