While the Mexico City incident didn't destroy Lee Tracy's career, it inflicted a lot of damage — and blossomed into a Hollywood legend that has been so embellished over the years that the truth will never be known. Even Tracy revised his version a few times.
What's true is that Tracy was fired from the film and was replaced by Stu Erwin. Howard Hawks, the original director of "Viva Villa," also was let go and was replaced by Jack Conway.
Tracy specialized in playing fast-talking reporters and press agents with few (if any) scruples. He also had a reputation for getting drunk regularly and often showing up late for work.
He played reporter Hildy Johnson in the Broadway version of "The Front Page," and when he arrived in Hollywood was kept busy in 1932 and 1933 (up until November) in such films as "Washington Merry-go-Round," "Dinner at Eight" and "Bombshell," the last two with Jean Harlow.
As for the Mexico City incident, the favorite version (and one that almost certainly contains no truth) is that he stood on a balcony and urinated on Mexican cadets who were parading past his hotel. This set up the obvious line about Lee Tracy pissing away his career.
The Wikipedia biography of Tracy sort of supports this fairy tale with a reference to Desi Arnaz, who claimed he had worked on the film, and also that from then on Mexicans would disperse any time an American stepped out onto a balcony.
First, there's no evidence the Cuban-born Arnaz was anywhere near Mexico City when the film was made. Arnaz didn't appear in his first movie until 1940.
Second, there was no balcony at the hotel. As Tracy explained in an ad he placed in Modern Screen magazine:
"I did nothing shameful or disgraceful while in Mexico. I was fully clothed. There was no balcony. I was in a hotel room seven stories above the ground, peering over an iron grating that reached to my chest."
Actor-director Irving Pichel claimed he was in Tracy's room and he supported the actor's version, except for saying Tracy had a blanket over his shoulders. (Tracy, during one of his interviews, said he was wearing only pajama bottoms; in another he mentioned the blanket.)
Long story short, Tracy shouted something at the passing cadets. He claimed he said nothing offensive, but whatever it was got lost in translation. Someone — a cadet, perhaps — shouted back something Tracy took as an insult, so the actor yelled again, this time telling the cadet where he could go.
Perhaps in his excitement he dropped the blanket, which gave the impression to the Mexican father on the street that the American actor was unclothed. Had Tracy actually urinated through the grate then you can bet that father would have added that detail to his complaint.
As mentioned, Tracy kept working in films and later in television until 1965, three years before he died at age 70. His last big screen role was in 1964's "The Best Man" when he played fictional United States president Art Hockstader.