De Valera ended his boycott of the Dáil following the elections in June 1927 and, reluctantly taking the oath of allegiance, entered the Dáil in August with his newly formed Fianna Fáil party. In part as a result of the government's failure to cope with domestic difficulties brought on by the world economic crisis of the early 1930s, Cosgrave's party lost several seats to Fianna Fáil in the elections of February 1932. De Valera thereupon became head of a minority government, beginning a stay in office that would last 16 years.

De Valera sponsored legislation in April 1932 that included provisions for revoking the oath of allegiance. This bill, which would have also virtually ended the political ties between the United Kingdom and the Free State, was approved by the Dáil, but was rejected by the Seanad. Next, he withheld payment of certain land purchase annuities that the British government claimed were legally due. These repayments were for loans advanced to Irish tenant farmers under the Land Acts of 1891-1909 to allow them to purchase farmland. De Valera rejected these claims on the grounds that they had not been ratified in the Dáil, and subsequently refused to accept Commonwealth arbitration on the matter.

This led to a protracted tariff war between the two countries, with Britain imposing high duties on Irish cattle and dairy imports, and Ireland responding by taxing British coal, machinery, and iron and steel. The so-called "Economic War" caused serious damage to the economy of the Free State, and was finally resolved through the Anglo-Irish agreements of 1938.

In another significant and highly controversial move, De Valera secured repeal of a law restricting the activities of the IRA, many of whom had fought alongside him in the Civil War of 1922-1923. The electorate registered approval of his programme in the January 1933 elections, in which a Fianna Fáil majority was returned to the Dáil. With this mandate from the people, De Valera systematically developed his programme for the gradual elimination of British influence in Irish affairs, obtaining abrogation of the oath of allegiance, restrictions on the role of the Governor-general, and other measures. Simultaneously the government initiated measures designed to give the country a self-sufficient economy. Steps taken included high income taxes on the rich, high protective tariffs, and control of foreign capital invested in Irish industry.

In June 1935 De Valera severed his political ties with the IRA, which had been extremely critical of many of his policies, and imprisoned some of its leaders. Meanwhile, a draft of a new constitution was in progress. 

In 1936 Fianna Fáil, in coalition with other groups in the Dáil, finally secured passage of legislation abolishing the Seanad, long inimical to De Valera's policies. The Dáil functioned as a unicameral legislature for the remainder of its term.

In connection with the events surrounding the abdication of Edward VIII, the Dáil enacted in 1936 a bill that deleted all references to the British monarch from the constitution of the Free State and abolished the office of Governor-general.

The External Relations Act of 1936, passed at the same time, restricted the association of the Free State with the Commonwealth to joint action on certain questions involving external policy, specifically the approval of the trade treaties of the Free State and the appointment of foreign envoys.