A monthly journal agreed to publish his trilogy.
Mahfouz began writing novels again and soon completed his most controversial one, The Children of Gebelawi . The novel was released in Egypt's newspaper, Al Ahram , and its religious overtones brought the ire of Islamic conservatives. The novel was never released in book form in Egypt. While many threats were made against him, Mahfouz carried on until 1994. After Ayatollah Khomeini issued a fatwa (a legal decree that usually called for the death of the agitator), against Indian author Salman Rushdie in 1989, Egyptian extremists pointed to Mahfouz and his Gebelawi novel and also issued a fatwa . He was stabbed in the neck outside of his apartment building. Though the wound missed a vital organ, it caused major nerve damage to his writing hand. Mahfouz, who wrote all of his work in longhand, could no longer write. He entered rehabilitation to regain use of his writing hand, but could not write for periods longer than 30 minutes.
This attack, however, did not slow him down. Though very shy, Mahfouz maintained an active social life, meeting with friends daily at various cafés and restaurants throughout Cairo. Quoted in the Los Angeles Times , he said, "I don't like a week to pass without having gone to the movies, and to the theater, and to have worked and to have met my friends."

In 1988 Mahfouz was awarded the Nobel Prize for Literature, the first Arab author to be honored. Known for rarely leaving Cairo, he sent his two daughters to accept the prize on his behalf. While he had gained acclaim and popularity throughout Egypt and the Middle East, he was a literal unknown to the rest of the world. But with this award, his works began to be published in a variety of languages. According to the New York Times , Mahfouz was "admired for his vivid depictions of modern Egypt and the social, political, and religious dilemmas of its people."

In all, Mahfouz published more than 50 novels, and countless short stories and screenplays. In addition to his trilogy and The Children of Gebelawi , he also gained recognition for The Thieves and the Dogs, Miramar , and The Day the Leader Was Killed . Several of his screenplays were also turned into films.

Mahfouz was still active well into his nineties. He continued to meet with his friends at cafés and held weekly salons to discuss current events. He was in failing health and suffered a fall in July of 2006. He died on August 30, 2006, from a bleeding ulcer at the age of 94. He is survived by his wife, Attiyatullah, and his two daughters, Fatima and Umm Kulthoum.