From PEOPLE Magazine Click to enlarge
As Mrs. Tom Cruise, she lived the kind of rarefied life few people outside of royalty and its Hollywood equivalent will ever know: a wedding in an Italian castle, a 10,000-sq.-ft. Beverly Hills mansion, travel in a personal Gulfstream IV and a style team on call for every carefully orchestrated red carpet appearance. Now Katie Holmes calls an upscale two-bedroom apartment in Manhattan's bustling Chelsea neighborhood home - and has even been spotted on the subway with her daughter Suri, 7. When she shakes the paparazzi who still trail her, you could almost forget the last chapter of her life ever happened. Writer Emma Pearse nearly didn't notice Holmes when she ran into the actress filming with a tiny crew on Avenue C on May 29. "I almost walked by, and there was Katie," says Pearse. "She looked just like Joey Potter" - her character from the TV series Dawson's Creek. "Really young and super chill. No one was paying any attention. It was a laid-back situation."

That's just the way Holmes wants it. A year after her bombshell decision to upend her life and leave her husband of six years, the actress, 34, has embraced a lower-key existence as a single mom in the city. "She is in her prime," says a source close to her, "and truly enjoying the life she is creating for herself." For now, her days are focused on filming her low-budget indie Mania Days, arranging activities for Suri and emerging for an occasional stylish night out. "She's shown such strength as a mother and as a woman," says her friend Nina Garcia. Still, her new life has brought challenges too - from the bumpy road she has faced career-wise to her anxiety about dating again. "She had the courage to leave and take control of her life," says a producer who has worked with her. "Things have been tough for her, but she's happy. She's moving on."

Several sources say Holmes, who filed for divorce from Cruise on June 28, 2012, still doesn't feel ready for a new relationship. "She's lying low on the romantic side of things," says the producer. "She doesn't need that right now. Her focus is on Suri." Of course, being spotted with any man sparks romance rumors. A recent makeout session with her Mania Days costar Luke Kirby made headlines but was strictly for the camera. The two "are just friends," says a source close to Kirby, 35, who once dated Rachel McAdams and has a longtime girlfriend in New York. But, says the source, "they spend a lot of time together. Luke thinks Katie is terrific." Holmes does want to rekindle her love life eventually, and when asked by Allure earlier this year if she'd ever want to expand her family, she said, "I'm open to it." Still, all of that can wait. Says the producer source: "I don't think she's ready."

Meanwhile, Holmes is attempting to revive her acting career with Mania Days, executive-produced by Spike Lee, in which she plays a manic depressive poet who falls for a rapper (Kirby). "She's really psyched about the role," says costar Patrick Byas. But multiple sources say she's frustrated by the lack of bigger opportunities. Long overshadowed by her powerful husband, she once blamed Cruise for her stalled career, but things have yet to turn around on the job front. "It's been hard for her to find a job," says a Hollywood insider who knows her. "She hasn't worked much, and it's not by choice. She has to find her own way." It's a challenge she's ready for. "Once she left Tom, she got right back on track," says the producer. "Her attitude was 'Okay, fine, let's get back to work.' " But her Broadway play Dead Accounts closed quickly last winter, and she dropped out of the film Molly, a drama about a single mom that she cowrote and planned to coproduce, right after her divorce. Even her fashion line Holmes & Yang has scaled down from a Fashion Week presentation last fall to appointment-only viewings (which Holmes skipped) this spring.

While Hollywood hasn't immediately come calling, Madison Avenue has. Holmes has nabbed several high-profile fashion and beauty endorsements, including jeweler H. Stern, Bobbi Brown Cosmetics (which is releasing a Katie palette this fall) and hair-care line Alterna (which she partly owns). The ads are an easy gig for a working mom. "Katie will rise again," says an agent. "People have dips and lulls all the time. She's a huge star, but she's made it very clear her daughter is her priority right now."

By all accounts, Holmes is an extremely devoted mom. "She is loving, caring and protective," says her neighbor, decorator Christopher Hyland. Still, single parenthood (even with help from a nanny) has been a challenge. While she remains very close to her Toledo, Ohio-based family, who saw her through the split - her parents visit often and accompanied Holmes and Suri to Walt Disney World in March - she's often solo. "Katie seems flustered a lot," says a second neighbor. "You can see the struggle in her face. Suri is quite a handful." And a joy, too, of course, with Holmes delighting in taking her little girl for museum visits, ice cream treats and other urban-kid outings. At Avenues, Suri's private school, Holmes "rushes in, wearing no makeup, just like the rest of us," says a downtown mom. "She and Suri chat and hold hands. There's never a parade of security or nannies around her."

Like any divorced parent, Holmes (who has primary custody) has to negotiate her daughter's visits with her ex. Sources close to both say the process is amicable. Cruise, who recently wrapped a worldwide tour promoting Oblivion, last visited with Suri the weekend of June 8, at the tony Greenbrier resort in West Virginia, where he was spotted tossing his delighted daughter into the pool. After their trip to Walt Disney World last August turned into a paparazzi frenzy, Cruise has kept his visits away from the cameras. He still speaks with Suri every day. "Sometimes twice a day," says his lawyer Bert Fields. "Tom loves her dearly."

That's something he and Katie share - along with a fierce determination to carry on. At a recent early-morning spinning workout at SoulCycle, "she was completely focused," says a fellow regular. When it was over, she high-fived a pal. "Drenched in sweat," says the observer. "And still smiling."