There’s no particular drama leading to the cancellation of the show insofar as basic facts, but it’s arguably also a victim of a unique moment in television. The simple answer is that Dharma & Greg didn’t perform well — its fourth season, which aired during a relatively late time slot and against the juggernaut Frasier, suffered due to stiff competition. Its fifth and final season continued to droop to half of its peak Nielsen rating back in season 3, and so it and the other last vestige of the 1997 premiere season, Ally McBeal, were both canceled. That’s the official story, but there’s a twist. As we said, Dharma & Greg was canceled in 2002, but that fifth season began the previous September — September 25th, 2001, in fact.
The terrorist attacks on September 11th, 2001 had a radical effect on all media in production, first release, and syndication in the immediate aftermath, and for years afterward. The television season typically begins in early September, and all those premieres that year, new and renewed shows alike, were put back weeks in response to the tragedy and the overwhelming amount of news coverage in the weeks and months afterward. The setback of a rescheduled season premiere will hit any show hard, but the post-event mourning doesn’t leave much room for light-hearted odd-couple sitcoms, either.