Disney and his brother pooled their money to set up a cartoon studio in Hollywood.[33] Needing to find a distributor for his new Alice Comedies-which he started making while in Kansas City,[31] but never got to distribute- Disney sent an unfinished print to New York distributor Margaret Winkler, who promptly wrote back to him. She was keen on a distribution deal with Disney for more live-action/animated shorts based upon Alice's Wonderland.[34]

Alice Comedies
Virginia Davis (the live-action star of Alice’s Wonderland) and her family were relocated at Disney's request from Kansas City to Hollywood, as were Iwerks and his family. This was the beginning of the Disney Brothers' Studio. It was located on Hyperion Avenue in the Silver Lake district, where the studio remained until 1939. In 1925, Disney hired a young woman named Lillian Bounds to ink and paint celluloid. After a brief period of dating her, the two got married the same year.

The new series, Alice Comedies, was reasonably successful, and featured both Dawn O'Day and Margie Gay as Alice. Lois Hardwick also briefly assumed the role of Alice. By the time the series ended in 1927, the focus was more on the animated characters, in particular a cat named Julius who resembled Felix the Cat, rather than the live-action Alice.

Oswald the Lucky Rabbit
By 1927, Charles B. Mintz had married Margaret Winkler and assumed control of her business, and ordered a new all-animated series to be put into production for distribution through Universal Pictures. The new series, Oswald the Lucky Rabbit, was an almost instant success, and the character, Oswald—drawn and created by Iwerks—became a popular figure. The Disney studio expanded, and Walt hired back Harman, Rudolph Ising, Carman Maxwell, and Friz Freleng from Kansas City.

In February 1928, Disney went to New York to negotiate a higher fee per short from Mintz. Disney was shocked when Mintz announced that not only he wanted to reduce the fee he paid Disney per short but also that he had most of his main animators, including Harman, Ising, Maxwell, and Freleng (notably, except Iwerks, who refused to leave Disney) under contract and would start his own studio if Disney did not accept the reduced production budgets. Universal, not Disney, owned the Oswald trademark, and could make the films without Disney. Disney declined Mintz's offer and lost most of his animation staff.

With most of his staff gone Disney now found himself on his own again.[35] It took Disney's company 78 years to get back the rights to the Oswald character. The Walt Disney Company reacquired the rights to Oswald the Lucky Rabbit from NBC Universal in 2006, through a trade for longtime ABC sports commentator Al Michaels.