A member of the House of Commons from 1868, Campbell-Bannerman (who in 1871 added his mother's family surname to that of his father) served as financial secretary to the War Office (1871–74, 1880–82), parliamentary and financial secretary to the Admiralty and spokesman for the Admiralty in the Commons (1882–84), chief secretary for Ireland (1884–85), and secretary of state for war (1886, 1892–95). On June 21, 1895, he induced the Duke of Cambridge, a cousin of Queen Victoria, to retire as commander in chief of the armed forces. During his 39-year tenure the duke had blocked army reform, and the queen, recognizing the necessity of the change, rewarded Campbell-Bannerman with a knighthood. At the same time, however, a Commons vote, taken with few Liberals present, on a Conservative motion to reduce Campbell-Bannerman's salary resulted in a defeat for the government and the resignation of the 5th Earl of Rosebery's ministry.

On Feb. 6, 1899, Campbell-Bannerman was elected leader in the Commons of the badly divided Liberal Party. During the South African War he at first pursued a middle course between the imperialists and the antiwar “pro-Boers” among the Liberals. On June 14, 1901, however, he exacerbated party disunity by condemning the British “methods of barbarism in South Africa.” The Liberal imperialists' threatened secession from the party was averted, and the end of the war a year later eased party tensions, as did Campbell-Bannerman's “step by step” approach to the divisive issue of Irish Home Rule.

After the resignation of the Conservative prime minister Arthur James Balfour late in 1905, Campbell-Bannerman accepted the post from King Edward VII, whose friend he had become. His cabinet included two future prime ministers, Herbert Henry Asquith (afterward 1st Earl of Oxford and Asquith), who had been a Liberal imperialist, and David Lloyd George, who had been “pro-Boer,” and also included the first person from the working class ever to attain cabinet rank in Great Britain, John Elliot Burns. The general election of January 1906 produced a large Liberal majority in the Commons, but much of the Campbell-Bannerman legislative program was nullified by the House of Lords. He obtained, however, the peers' approval of the Trades Disputes Act of 1906, which gave labour unions considerable freedom to strike. Self-government for the Transvaal and the Orange River Colony was conceded by letters patent, over which the Lords had no control.

In 1907 Campbell-Bannerman's health began to fail, and, 17 days before his death, he resigned in favour of Asquith.