His most famous work is "Alice's Restaurant Massacree", a talking blues song that lasts 18 minutes and 34 seconds in its original recorded version (Guthrie has been known to spin the story out to forty-five minutes in concert). Guthrie has pointed out that this was also the exact length of one of the famous gaps in Richard Nixon's Watergate tapes. The Alice in the song is Alice Brock, who now runs an art gallery in Provincetown, Massachusetts.

The song, a bitingly satirical protest against the Vietnam War draft, is based on a true incident. In the song, Guthrie is called up for a draft examination, and rejected as unfit for military service as a result of a criminal record — consisting in its entirety of a single arrest, court appearance, fine and clean-up order for littering and creating a public nuisance on Thanksgiving Day in 1965, when Arlo was eighteen years old. On the DVD commentary for the film, Guthrie states that the events as presented in the song are true to real-life occurrences.

For a short period of time after its release in 1967, "Alice's Restaurant" was in frequent rotation on nearly every college and counter-culture radio station in the country. Indeed, it became a symbol of the late '60s and for many it defined an attitude and lifestyle that were lived out across the country in the ensuing years. Many stations across the States have made playing "Alice's Restaurant" a Thanksgiving Day tradition.

A 1969 film, directed and co-written by Arthur Penn, was based on the story. In addition to acting in this film, also called Alice's Restaurant, Guthrie has had minor roles in several movies and television series. Guthrie's memorable appearance at the 1969 Woodstock Festival was documented in the Michael Wadleigh film Woodstock.