Kennedy established the Citizens Energy Corporation, a non-profit organization. In 1986 he was elected to the U.S. House of Representatives from Massachusetts, from the district formerly represented by Thomas P. "Tip" O'Neill (1953-1987) and his uncle, President John F. Kennedy (1947-1953). He served until 1999 to return to his non-profit organization.

He divorced Sheila Rauch to later marry Anne Kelly. His efforts to have the marriage to Rauch annulled led to a great deal of negative publicity: Rauch, who was not Catholic, was unhappy that her ex-husband and the Catholic Church were claiming that the marriage theoretically never actually existed in the first place. This furore may have factored into his decision to abandon his plan to campaign for governor of Massachusetts. There was also a scandal involving his brother Michael, who was also Joe's campaign manager, allegedly having had an affair with a teenaged babysitter. This negative publicity damaged the once-promising gubernatorial campaign and effectively killed his lead in the polls. He has two sons from his marriage to Sheila Rauch: Matthew Rauch Kennedy (born Oct. 4, 1980) and Joseph Patrick Kennedy III (born Oct. 4, 1980).

Even greater negative publicity resulted from Joe Kennedy being involved in a tragedy on the island of Nantucket, Massachusetts in 1973. Joe was the driver of an open top jeep which he drove off a road and rolled several times. A passenger, Pam Kelley's spine was crushed which crippled her for life.

He again considered running for the governorship in 2002, but opted out, fuelling speculations that he might be holding out for his uncle Ted Kennedy's Senate seat if his uncle had decided to retire in 2006. However, Senator Kennedy is running to retain his seat for another term, until 2012.