He made contributions to the Cthulhu Mythos and the cosmic horror genre and helped found the publisher Arkham House (which did much to bring supernatural fiction into print in hardcover in the US that had only been readily available in the UK).

Some of his biggest influences were Ralph Waldo Emerson's essays, Walt Whitman, H. L. Mencken's The American Mercury, Samuel Johnson's The History of Rasselas, Prince of Abissinia, Alexandre Dumas, Edgar Allan Poe, Walter Scott, and Henry David Thoreau's Walden.

Returning to Sauk City in the summer of 1931, Derleth worked in a local canning factory and collaborated with childhood friend Mark Schorer (later Chairman of the University of California, Berkeley English Department).

As a result of his early work on the Sac Prairie Saga, Derleth was awarded the prestigious Guggenheim Fellowship; his sponsors were Helen C. White, Nobel Prize-winning novelist Sinclair Lewis and poet Edgar Lee Masters of Spoon River Anthology fame.

His hobbies included fencing, swimming, chess, philately and comic-strips (Derleth reportedly used the funding from his Guggenheim Fellowship to bind his comic book collection, most recently valued in the millions of dollars, rather than to travel abroad as the award intended.).

This assertion has not been verified; no names were given of these romantic partners (in the interest of privacy according to Litersky), and no evidence or acknowledgement of Derleth having a bisexual or homosexual orientation has ever been found in his personal correspondence.

Derleth intended this series to comprise up to 50 novels telling the projected life-story of the region from the 19th century onwards, with analogies to Balzac's Human Comedy and Proust's Remembrance of Things Past.

"[11] Derleth's first novel, Still is the Summer Night, was published two years later by the famous Charles Scribners' editor Maxwell Perkins, and was the second in his Sac Prairie Saga.

James Grey, writing in the St. Louis Dispatch concluded, "Derleth has achieved a kind of prose equivalent of the Spoon River Anthology."

Yet he is also a burly, bounding, bustling, self-confident, opinionated, and highly-sweatered young man with faults so grievous that a melancholy perusal of them may be of more value to apprentices than a study of his serious virtues.

This prose meditation is built out of the same fundamental material as the series of Sac Prairie journals, but is organized around three themes: "the persistence of memory...the sounds and odors of the country...and Thoreau's observation that the 'mass of men lead lives of quiet desperation.'"

Of this work, George Vukelich, author of "North Country Notebook", writes: "Derleth's Walden West is...the equal of Sherwood Anderson's Winesburg,Ohio, Thornton Wilder's Our Town, and Edgar Lee Masters' Spoon River Anthology."

This was followed eight years later by Return to Walden West, a work of similar quality, but with a more noticeable environmentalist edge to the writing, notes critic Norbert Blei.

Most notable among this work was a series of 70 stories in affectionate pastiche of Sherlock Holmes, whose creator, Sir Arthur Conan Doyle, he admired greatly.

The series was greatly admired by such notable writers and critics of mystery and detective fiction as Ellery Queen (Frederic Dannay), Anthony Boucher, Vincent Starrett, and Howard Haycraft.

In his 1944 volume The Misadventures of Sherlock Holmes, Ellery Queen wrote of Derleth's "The Norcross Riddle", an early Pons story: "How many budding authors, not even old enough to vote, could have captured the spirit and atmosphere with as much fidelity?"

Vincent Starrett, in his foreword to the 1964 edition of The Casebook of Solar Pons, wrote that the series is "as sparkling a galaxy of Sherlockian pastiches as we have had since the canonical entertainments came to an end."

In 1946, Conan Doyle's two sons made some attempts to force Derleth to cease publishing the Solar Pons series, but the efforts were unsuccessful, and were eventually withdrawn.

[12] Derleth's mystery and detective fiction also included a series of works set in Sac Prairie and featuring Judge Peck as the central character.

Derleth wrote many and varied children's works, including biographies meant to introduce younger readers to explorer Jacques Marquette, as well as Ralph Waldo Emerson and Henry David Thoreau.

The connection to the Sac Prairie Saga was noted by the Chicago Tribune: "Once again a small midwest community in 1920s is depicted with perception, skill, and dry humor."

Derleth invented the term "Cthulhu Mythos" to describe the fictional universe depicted in the series of stories shared by Lovecraft and other writers in his circle.

There are indeed tales wherein Derleth's protagonists get off scot-free (like "The Shadow in the Attic", "Witches' Hollow", or "The Shuttered Room"), but often the hero is doomed (e.g., "The House in the Valley", "The Peabody Heritage", "Something in Wood"), as in Lovecraft.

And it must be remembered that an occasional Lovecraftian hero does manage to overcome the odds, e.g., in "The Horror in the Museum", "The Shunned House", and 'The Case of Charles Dexter Ward'.

While Derleth considered his work in this genre less important than his most serious literary efforts, the compilers of these four anthologies, including Ramsey Campbell, note that the stories still resonate after more than 50 years.

In the foreword to the 1985 reissue of the work by The University of Wisconsin Press, Thompson concluded: "No other writer, of whatever background or training, knew and understood his particular 'corner of the earth' better than August Derleth."

Three of his collections – Rind of Earth (1942), Selected Poems (1944), and The Edge of Night (1945) – were published by the Decker Press, which also printed the work of other Midwestern poets such as Edgar Lee Masters.

He also wrote introductions to several collections of classic early 20th century comics, such as Buster Brown, Little Nemo in Slumberland, and Katzenjammer Kids, as well as a book of children's poetry entitled A Boy's Way, and the foreword to Tales from an Indian Lodge by Phebe Jewell Nichols.