The celebration has been bigger than last year, with more than 700,000 people coming to the party, which ends at midnight.
A lot of tourists come for the music. And one of the few signs of recovery in the 18 months since Hurricane Katrina is that many musicians have come back home, thanks in large part to a housing program designed to keep and attract them.
The Early Show national correspondent Tracy Smithlast summer.
It is, Smith says, a neighborhood that shows what's working in New Orleans.
Jazz singer Ellen Smith admits she thought about staying away, "But you can't be a New Orleans jazz singer living in Dallas."
She now spends $600 a month to own a home in the village, a project of the volunteer group Habitat for Humanity.
Ellen only has the basic necessities in her house, items such as an air mattress and her public address system for work.
There are no grocery stores in the area and a nearby stoplight still isn't working. Even getting such things as a stove and gas to power it remains a challenge.
Habitat volunteers have built 34 houses in the village, with 35 more on the way.
Tracy calls that evidence of both the progress and problems in New Orleans.
Jim Pate, Habitat's New Orleans executive director, says they are "the biggest home builder in New Orleans post-Katrina, which is pretty stunning."
Ellen Smith told Tracy Smith that Habit being the biggest local redeveloper makes the city "look bad."
"Despite all the colorful celebrations," Tracy says, "this city's still tangled in red tape. And a dwindling police force has seen two dozen murders already this year."
Ellen says she tries "not to go out at night unless I absolutely have to."
Still, she says, she's a homeowner, and can't believe it.
Ellen is one voice in a neighborhood of musicians in a city of music that "could make all the difference in the world," Tracy Smith says.