He had always wanted to become an actor. In his youth he tried out as an actor at the Royal Danish Theatre, but because of his appearance he was not selected. Instead he turned to the role of a writer
He started out as a playwright, writing a series of semi-successful plays most notably the play The young Darcy ("Den unge Darcy" 1780) was a success.
Rahbek quickly became one of the most prominent speakers on cultural matters, and with his work as publisher and editor the journals Minerva and The Danish Spectator ("Den danske Tilskuer") he was one of the main voices of the Danish moderate Enlightenment. Together with librarian and scholar Rasmus Nyerup he founded the Danish study of literary history with the work Contributions to a review of the art of poetry in Denmark ("Bidrag til en oversigt over den danske Digtekonst" (in 5 volumes 1800-1828).
He also was one of the only Danish writers of novels and short stories at the turn of 19th century. Almost all of the Danish writers and prominent persons visited Bakkehuset on a regular basis.
As a prominent member of the most distinguished of the Danish clubs, most notably Drejers Club, he wrote a number of drinking songs.