Heather Graham's Felicity Shagwell was a great addition to the second movie, but here's why she didn't return for the third entry, Austin Powers in Goldmember. The James Bond franchise has been parodied hundreds of times, but in the eyes of many, none did it better than the Austin Powers series. While Austin Powers can certainly be enjoyed without having a familiarity with the early days of 007, having that nostalgia unlocks the key to lots of hilarious references back to the Sean Connery and Roger Moore classics.
The first Austin Powers was a surprise hit in 1997, bolstered by positive reviews, and earning $68 million on a $16 million budget. While not a massive profit margin, that was only a prelude to how Austin Powers would take off on home video via word of mouth. This led to a sequel in 1999, Austin Powers and the Spy Who Shagged Me, which saw Austin's first love interest Vanessa Kensington (Elizabeth Hurley) hilariously written out, and replaced by Heather Graham's Felicity.
While such replacements often don't go over well with fans, Felicity proved nearly as popular as Vanessa, so it was a shame when she failed to return at all for 2002's Austin Powers in Goldmember. Austin's new love interest was Beyonce's Foxxy Cleopatra, but Felicity's disappearance went unexplained onscreen. While that fits the "Bond Girl" revolving door love interest motif, there are actually two plausible explanations for Felicity's exit from the narrative, one offered in a reported deleted scene and the other a fan theory.
According to widely circulated information, a scene was shot for Austin Powers in Goldmember that ended up being deleted, in which Felicity revealed she left Austin due to him still being in love with Vanessa. While that seems fairly plausible, this scene has never appeared on a home video release and can't be found online either, so it's possible it's based on incorrect reports that somehow stuck over the years. Either way, it's not a very satisfying explanation, as Austin seemed to get over Vanessa very quick, and even professed his love for Felicity onscreen in Austin Powers 2.
However, there's a fan theory as to the fate of Heather Graham's Felicity that makes more sense, and ties into the final scenes of The Spy Who Shagged Me. The ending saw Felicity sleep with both Austin and a version of Austin that had time-traveled from slightly into the past to help save her life. Neither Austin seemed to mind, and since the two Austins co-existing isn't brought up in Goldmember, the theory posits Felicity went off with one of them, and the other Austin is the one viewers see back on the job in the third movie. It's such an easy, yet logical, solution that one wonders why it wasn't made Austin Powers canon.