Westhead started his NBA head coaching career at the top of the NBA world, succeeding Jack McKinney as the coach of the Los Angeles Lakers after serving briefly as an assistant to McKinney (Westhead initially became interim head coach after McKinney was hospitalized due to a serious bicycle accident). With rookie guard Magic Johnson and longtime star Kareem Abdul-Jabbar, the Lakers won the 1980 NBA Finals in Westhead's first year as coach, defeating Philadelphia in six games. However, the team lost in the playoffs the next year to the Moses Malone-led Houston Rockets. Westhead was fired early in his third season with the Lakers, and replaced with Pat Riley (whom Westhead had hired as an assistant). Although it is commonly believed that Magic Johnson orchestrated Westhead's ouster, a 1987 book called "Winnin' Times" (about the Los Angeles Lakers' franchise history) indicated that Laker owner Jerry Buss wanted to fire Westhead several days prior to the actual occurrence.
Westhead returned to the college ranks, and took over as the head coach of the Loyola Marymount Lions men's basketball program. From 1985–1990, Westhead oversaw an impressive run in which Loyola Marymount, despite being a smaller school and not a traditional NCAA basketball power, became a legitimate contender in NCAA hoops. Westhead lured star players like Hank Gathers and Bo Kimble, who both transferred from USC, and rewrote many NCAA record books with Loyola Marymount's famous, up-tempo, run-and-gun style.
From 1988 to 1990, Westhead's teams went 27–3, 20–10 and 23–5 respectively, earning NCAA tournament berths each year. Gathers led the NCAA in scoring and rebounding (32.7 ppg, 13.7 rpg) in 1989 and Kimble led the NCAA in scoring in 1990 (35.3 ppg). After the on-court death of Gathers in its conference tournament, LMU went on an inspired run in the NCAA tournament in 1990 that captured the attention of the entire college basketball world for those weeks. The Lions blew out defending champion Michigan in the 2nd round and made it to the Regional Final round before losing to eventual champion UNLV.
Westhead's teams led Division I in scoring in 1988 (110.3 points per game), 1989 (112.5), and 1990 (122.4). LMU's 122.4 point per game in 1990 was still a record as of October 2010. As of April 2012, Loyola Marymount held the five highest combined score games in Division I history. Four of the five occurred during Westhead's career, including a record 331 in the 181–150 win over United States International University on January 31, 1989.
After the 1989–1990 season, Westhead left LMU for the NBA's Denver Nuggets, a position he held for two seasons. His tenure in Denver was best known for attempting to incorporate the run-and-gun offense that worked for LMU to the NBA.
However, while Denver averaged a league-best 119.9 points per game in 1990–91, it also surrendered an NBA record 130.8 points per game, including 107 points in a single half to the Phoenix Suns, which remains an NBA record. Under Westhead, the Nuggets were sometimes called the "Enver Nuggets" (as in no "D"). The next year the Nuggets drafted Dikembe Mutombo, who made the All-Star team, and played at a more conservative pace scoring just 9.7 points per game, but only improved to 24 wins. Westhead was fired from the Nuggets after two seasons after posting a combined W/L record of 44–120.
Following his tenure with the Nuggets, Westhead returned to college coaching as the head coach of George Mason University from 1993–1997. This time, Westhead's run-and-gun style did not succeed at the college level, ending his tenure at Mason with a 38–70 record. Westhead was succeeded at Mason by Jim Larranaga after the 1996–1997 season.
In 2005, Westhead was hired as the head coach of the WNBA's Phoenix Mercury, a position that he held until the 2007 WNBA season concluded. In 2007, Westhead coached the Mercury to a WNBA championship, making him the only coach to win a championship in the NBA and the WNBA. The Mercury won using Westhead's fast-paced approach.
On September 27, 2007 he agreed to a contract with the NBA's Seattle SuperSonics to be an assistant coach under longtime friend P. J. Carlesimo. When Carlesimo was relieved of his duties on November 21, 2008, Westhead was also released as an assistant at that time.
On March 26, 2009 University of Oregon Athletic Director Pat Kilkenny announced that Paul Westhead as the Ducks' newest head coach. As the sixth head coach in the history of the Oregon women's basketball, this is Westhead's first job as head coach of an NCAA women's program (although he had coached women's teams at the professional level before). On March 4th, 2014, the University of Oregon announced that they would not renew Westhead's contract, which expired March 31, 2014. Westhead was 65-90 overall at Oregon and 27-64 in conference play in five seasons. Westhead's Oregon contract was worth more than $3 million for five years, with his final season earning him $675,000. 
National champion Conference regular season champion Conference regular season and conference tournament champion Division regular season champion Division regular season and conference tournament champion Conference tournament champion