Abstract The noise in millisecond pulsar (MSP) timing data can include contributions from observing instruments, the interstellar medium, the solar wind, solar system ephemeris errors, and the pulsars themselves. The noise environment must be accurately characterized in order to form the null hypothesis from which signal models can be compared, including the signature induced by nanohertz-frequency gravitational waves (GWs). Here we describe the noise models developed for each of the MSPs in the Parkes Pulsar Timing Array (PPTA) third data release, which have been used as the basis of a search for the isotropic stochastic GW background. We model pulsar spin noise, dispersion measure variations, scattering variations, events in the pulsar magnetospheres, solar wind variability, and instrumental effects. We also search for new timing model parameters and detected Shapiro delays in PSR J0614−3329 and PSR J1902−5105. The noise and timing models are validated by testing the normalized and whitened timing residuals for Gaussianity and residual correlations with time. We demonstrate that the choice of noise models significantly affects the inferred properties of a common-spectrum process. Using our detailed models, the recovered common-spectrum noise in the PPTA is consistent with a power law with a spectral index of γ = 13/3, the value predicted for a stochastic GW background from a population of supermassive black hole binaries driven solely by GW emission.