The group had been rehearsing regularly, overseen by McLaren's friend Bernard Rhodes, and had performed publicly for the first time. Soon after McLaren's return, Nightingale was kicked out of the band and Jones, uncomfortable as frontman, took over guitar duties. According to journalist and former McLaren employee Phil Strongman, around this time the band adopted the name QT Jones and the Sex Pistols (or QT Jones & His Sex Pistols, as one Rhodes-designed T-shirt put it). McLaren had been talking with the New York Dolls' Sylvain Sylvain about coming over to England to front the group. When those plans fell through, McLaren, Rhodes and the band began looking locally for a new member to assume the lead vocal duties. As described by Matlock, "Everyone had long hair then, even the milkman, so what we used to do was if someone had short hair we would stop them in the street and ask them if they fancied themselves as a singer." Among those they approached was Midge Ure, who was involved with his own band, Slik. Kevin Rowland who would cofound Dexys Midnight Runners three years later auditioned, but except for Matlock, no one was impressed. With the search going nowhere, McLaren made several calls to Richard Hell, who turned down the invitation.
In August 1975, Rhodes spotted nineteen-year-old Kings Road habitué John Lydon wearing a Pink Floyd T-shirt with the words I Hate handwritten above the band's name and holes scratched through the eyes. Reports vary at this point: the same day, or soon after, either Rhodes or McLaren asked Lydon to come to a nearby pub in the evening to meet Jones and Cook. According to Jones, "He came in with green hair. I thought he had a really interesting face. I liked his look. He had his 'I Hate Pink Floyd' T-shirt on, and it was held together with safety pins. John had something special, but when he started talking he was a real asshole but smart." When the pub closed, the group moved over to Sex, where Lydon, who had given little thought to singing, was convinced to improvise along to Alice Cooper's "I'm Eighteen" on the shop jukebox. Though the performance drove the band members to laughter, McLaren convinced them to start rehearsing with Lydon.
Lydon later described the social context in which the band came together:
Early Seventies Britain was a very depressing place. It was completely run-down, there was trash on the streets, total unemployment, just about everybody was on strike. Everybody was brought up with an education system that told you point blank that if you came from the wrong side of the tracks...then you had no hope in hell and no career prospects at all. Out of that came pretentious moi and the Sex Pistols and then a whole bunch of copycat wankers after us.
Nick Kent, a writer for the New Musical Express (NME) used to jam occasionally with the band, but left upon Lydon's recruitment. "When I came along, I took one look at him and said, 'No. That has to go,'" Lydon later explained. "He's never written a good word about me ever since." In September, McLaren again helped hire private rehearsal space for the group, which had been practising in pubs. Cook, who had a full-time job he was loath to give up, was making noises about quitting. According to Matlock's later description, Cook "created a smokescreen" by claiming Jones wasn't skilled enough to be the band's sole guitarist. An advertisement was placed in Melody Maker for a "Whizz Kid Guitarist. Not older than 20. Not worse looking than Johnny Thunders" (referring to a leading member of the New York punk scene). Most of those who turned up to audition were obviously incompetent, but in McLaren's view, the process created a new sense of solidarity among the four band members. The one talented guitarist who tried out, Steve New, was brought on. Jones, however, was improving rapidly and the band's developing sound had no room for the sort of technical lead work at which New was adept. He departed after a month.
Lydon had been rechristened "Johnny Rotten" by Jones, apparently because of his bad dental hygiene. The band also settled on a name. After considering options such as Le Bomb, Subterraneans, the Damned, Beyond, Teenage Novel, Kid Gladlove, and Crème de la Crème, they decided on Sex Pistols, a shortened form of the name they had apparently been working under informally. McLaren later explained that the name derived "from the idea of a pistol, a pin-up, a young thing, a better-looking assassin". Not given to modesty, false or otherwise, he added, " launched the idea in the form of a band of kids who could be perceived as being bad." The group began writing original material: Rotten was the lyricist and Matlock the primary melody writer (though their first collaboration, "Pretty Vacant", had a complete lyric by Matlock, which Rotten tweaked a bit); official credit was shared equally among the four.
The new quartet's first gig was arranged by Matlock, who was studying at Saint Martins College. The band played at the school on 6 November 1975, in support of a pub rock group called Bazooka Joe, arranging to use their amps and drums. The Sex Pistols performed several cover songs, including The Who's "Substitute", the Small Faces' "Whatcha Gonna Do About It", and "(I'm Not Your) Steppin' Stone", made famous by The Monkees; according to observers, they were unexceptional musically aside from being extremely loud. Before the Pistols could play the few original songs they had written to date, Bazooka Joe pulled the plugs as they saw their gear being trashed. A brief physical altercation between members of the two bands took place on stage.