At the 30th Grammy Awards in 1988, Houston was nominated for three awards, including Album of the Year, winning her second Grammy for Best Female Pop Vocal Performance for "I Wanna Dance With Somebody (Who Loves Me)". Houston also won two American Music Awards in 1988 and 1989, respectively, and a Soul Train Music Award. Following the release of the album, Houston embarked on the Moment of Truth World Tour, which was one of the ten highest grossing concert tours of 1987. The success of the tours during 1986–87 and her two studio albums ranked Houston No. 8 for the highest earning entertainers list according to Forbes magazine. She was the highest earning African-American woman overall and the third highest entertainer after Bill Cosby and Eddie Murphy.
Houston was a supporter of Nelson Mandela and the anti-apartheid movement. During her modeling days, the singer refused to work with any agencies who did business with the then-apartheid South Africa. On June 11, 1988, during the European leg of her tour, Houston joined other musicians to perform a set at Wembley Stadium in London to celebrate a then-imprisoned Nelson Mandela's 70th birthday. Over 72,000 people attended Wembley Stadium, and over a billion people tuned in worldwide as the rock concert raised over $1 million for charities while bringing awareness to apartheid. Houston then flew back to the US for a concert at Madison Square Garden in New York City in August. The show was a benefit concert that raised a quarter of a million dollars for the United Negro College Fund. In the same year, she recorded a song for NBC's coverage of the 1988 Summer Olympics, "One Moment in Time", which became a Top 5 hit in the US, while reaching number one in the UK and Germany. With her world tour continuing overseas, Houston was still one of the top 20 highest earning entertainers for 1987–88 according to Forbes magazine.
At the 1989 Soul Train Music Awards, when Houston's name was called out for a nomination, a few in the audience jeered. Houston defended herself against the criticism, stating, "If you're gonna have a long career, there's a certain way to do it, and I did it that way. I'm not ashamed of it". Houston took a more urban direction with her third studio album, I'm Your Baby Tonight, released in November 1990. She produced and chose producers for this album and as a result, it featured production and collaborations with L.A. Reid and Babyface, Luther Vandross, and Stevie Wonder. The album showed Houston's versatility on a new batch of tough rhythmic grooves, soulful ballads and up-tempo dance tracks. Reviews were mixed. Rolling Stone felt it was her "best and most integrated album".[ while Entertainment Weekly, at the time thought Houston's shift towards an urban direction was "superficial".
The album contained several hits: the first two singles, "I'm Your Baby Tonight" and "All the Man That I Need" peaked at number one on the Billboard Hot 100 chart; "Miracle" peaked at number nine; "My Name Is Not Susan" peaked in the top twenty; "I Belong to You" reached the top ten of the US R&B chart and garnered Houston a Grammy nomination; and the sixth single, the Stevie Wonder duet "We Didn't Know", reached the R&B top twenty. The album peaked at number three on the Billboard 200 and went on to be certified 4× platinum in the US while selling twelve million total worldwide.
During the Persian Gulf War, Houston performed "The Star Spangled Banner" at Super Bowl XXV at Tampa Stadium on January 27, 1991. This performance was later reported by those involved in the performance to have been lip synced or to have been sung into a dead microphone while a studio recording previously made by Houston was played. Dan Klores, a spokesman for Houston, explained: "This is not a Milli Vanilli thing. She sang live, but the microphone was turned off. It was a technical decision, partially based on the noise factor. This is standard procedure at these events." (See also Star Spangled Banner lip sync controversy.) A commercial single and video of her performance were released, and reached the Top 20 on the US Hot 100, making her the only act to turn the US national anthem into a pop hit of that magnitude (José Feliciano's version reached No. 50 in November 1968). Houston donated all her share of the proceeds to the American Red Cross Gulf Crisis Fund. As a result, the singer was named to the Red Cross Board of Governors.
Her rendition was critically acclaimed and is considered the benchmark for singers. Rolling Stone commented that "her singing stirs such strong patriotism. Unforgettable", and the performance ranked No. 1 on the 25 most memorable music moments in NFL history list. VH1 listed the performance as one of the greatest moments that rocked TV. Following the attacks on 9/11, it was released again by Arista Records, all profits going towards the firefighters and victims of the attacks. This time it peaked at No. 6 in the Hot 100 and was certified platinum by the Recording Industry Association of America.
Later in 1991, Houston put together her Welcome Home Heroes concert with HBO for the soldiers fighting in the Persian Gulf War and their families. The free concert took place at Naval Station Norfolk in Norfolk, Virginia in front of 3,500 servicemen and women. HBO descrambled the concert so that it was free for everyone to watch. Houston's concert gave HBO its highest ratings ever. She then embarked on the I'm Your Baby Tonight World Tour.