Succeeding to the peerage, the new earl soon made his mark in a speech delivered on the 16th of June 1840 in support of Lord Aberdeen's Church of Scotland Benefices Bill, a controversy arising out of the Auchterarder case, in which he had already taken part in the "general assembly" in opposition to Dr Chalmers. In May 1843 he became vice-president of the board of trade, Gladstone being president, and was sworn in as a member of the privy council. Succeeding Gladstone as president in 1845, he threw himself into the work during the crisis of the railway mania with such energy that his health partially broke down under the strain. In the struggle over the corn laws he ranged himself on the side of Sir Robert Peel, and after the failure of Lord John Russell to form a ministry he resumed his post at the board of trade, entering the cabinet on the retirement of Lord Stanley. When Peel resigned office in June 1846, Lord John offered Dalhousie a seat in the cabinet, an offer which he declined from a fear that acceptance might "involve the loss of public character." Another attempt to secure his services in the appointment of president of the railway board was equally unsuccessful; but in 1847 he accepted the post of governor-general of India in succession to Lord Hardinge, on the understanding that he was to be left in "entire and unquestioned possession" of his own "personal independence with reference to party politics."
Dalhousie assumed charge of his dual duties as governor-general of India and governor of Bengal on the 12th of January 1848, and shortly afterwards he was honoured with the green ribbon of the Order of the Thistle. In writing to the president of the board of control, Sir John Hobhouse, he was able to assure him that everything was quiet. This statement, however, was to be falsified by events almost before it could reach England. For on the 19th of April Vans Agnew of the civil service and Lieutenant Anderson of the Bombay European regiment, having been sent to take charge of Multan from Diwan Mulraj, were murdered there, and within a short time the Sikh troops and sardars joined in open rebellion. Dalhousie agreed with Sir Hugh Gough, the commander-in-chief, that the Company's military forces were neither adequately equipped with transport and supplies, nor otherwise prepared to take the field immediately. He also foresaw the spread of the rebellion, and the necessity that must arise, not merely for the capture of Multan, but also for the entire subjugation of the Punjab. He therefore resolutely delayed to strike, organized a strong army for operations in November, and himself proceeded to the Punjab. Despite the brilliant successes gained by Herbert Edwardes in conflict with Mulraj, and Goagh's indecisive victories at Ramnagar in November, at Sadulapur in December, and at Chillianwalla in the following month, the stubborn resistance at Multan showed that the task required the utmost resources of the government. At length, on the 22nd of January 1849, the Multan fortress was taken by General Whish, who was thus set at liberty to join Gough at Gujrat. Here a complete victory was won on the 21st of February, the Sikh army surrendered at Rawal Pindi, and their Afghan allies were chased out of India. For his services the earl of Dalhousie received the thanks of parliament and a step in the peerage, as marquess.