Mike Portnoy invited Jordan Rudess (keyboard) and progressive rock icon Tony Levin of King Crimson (bass, Chapman Stick) to join him. In his instructional video Liquid Drum Theater, Mike Portnoy said that his first choice for the guitar was Dimebag Darrell, but he was unable to join because of conflicting schedules. Portnoy then turned to fellow Dream Theater member John Petrucci to fill the position. The combo was formed as a side project to Dream Theater in 1998. Some theorize that Rudess was asked to join Dream Theater a second time largely because of the success of Liquid Tension Experiment. He had already declined a previous offer to join in 1994 and instead became a member of the Dixie Dregs. The band played fast, fusion-based pieces similar to those of Dream Theater, if somewhat more jazzy, and devoid of vocals.
Liquid Tension Experiment released two albums, Liquid Tension Experiment (1998) and Liquid Tension Experiment 2 (1999) on Magna Carta Records. They also played a few live shows in New York, Philadelphia, and Los Angeles. Mike Portnoy has previously stated in numerous interviews (and on his web site FAQ) that there would not be a third LTE album, as 3/4 of the band is in the current Dream Theater line-up and the material would be too similar; yet there can always be live shows with the same line-up. In 2007 however, he said that a third release is possible, but that his problems with the Magna Carta label are more of an obstacle than getting the band members together to record.
Several songs and riffs from the project have been incorporated into Dream Theater's live performances, such as "Instrumedley" from Live at Budokan.