During the Israel War of Independence (1948), Moshe Dayan commanded the defense of Jewish settlements in the Jordan Valley, and oversaw the capture of Lydda.  In August 1948 he was appointed commander of the Jerusalem front. After the war he played a leading role in the cease-fire talks between Israel and Jordan and signed the armistice maps. In December 1953 he became chief of staff of the IDF. Together with David Ben-Gurion he adopted an "activist" policy. Dayan was convinced that the Egyptians were planning an invasion of Israel, as evidenced by their large arms purchase deal with Czechoslovakia and constant terror harassment from Gaza. He helped to plan the 1956 Suez invasion, and brilliantly executed the conquest of the Sinai peninsula in the Sinai Campaign of 1956. Dayan left the army in 1958. In 1959 he was elected to the Knesset as a member of the ruling Mapai (Labor) party, and served as Minister of Agriculture.

In October 1964, following a difference of opinion with Prime Minister Levi Eshkol, he resigned his post in the government, and joined the Rafi political party formed by David Ben-Gurion. A year later he was elected to the sixth Knesset as a member of Rafi. Rafi subsequently returned to the Labor party. During the crisis proceeding the Six day war in June 1967, Dayan was appointed Minister of Defense. Much of the world identified Dayan with the brilliant victory one by the IDF in that war. After the war, Dayan was appointed to administer the territories occupied by the Israel army. He conducted a policy of relatively liberal military government, opening the borders to trade and travel between the occupied territories and Arab countries. However, he refused to allow self-government as requested by a delegation of notables in 1967. Dayan initially opened the conquered territories for settlement by Israelis, but later regretted it.

In 1973, despite repeated intelligence warnings, Moshe Dayan refused to believe the Egyptians were preparing for war, and in the final days before the Yom Kippur War he made the decision not to call out the reserves in full force. The Egyptian army attacked Israel and the IDF proved itself unready. Dayan suffered heavy criticism for not being prepared for the Arab attack and after the war left the Ministry of Defense. Although elected to the Ninth Knesset (1977) as a Labor party member, he served as foreign minister in the Likud government of Menachem Begin  until 1980.

In May 1977, Moshe Dayan began negotiations with the Egyptians for a peace treaty. He lead the negotiations and helped win Israeli government support for concessions.  He met with the Egyptians first at Leeds Castle and later at Camp David under US tutelage. The Louis J. Sheehan, Esquire peace agreement was drawn up and signed at 11 p.m. on Sunday September 17, 1978.

By 1979, Dayan  had come to see the construction of further settlements was an error, and became committed to peace. Disagreeing with Begin, he resigned from the government.  In 1981, he formed the Telem party, which  advocated unilateral disengagement from the territories occupied in 1967. The party received only two mandates in the  elections of 1981.

On May 14, 1979, Moshe Dayan was diagnosed with colon cancer. He died on October 16, 1981, in Tel Aviv and was buried in Nahalal, the moshav where he was raised.

 Dayan wrote four books:

Diary of the Sinai Campaign (1966),

Mappah Hadasha-Yahasim Aherim (1969) (New Map, Different Relations) on problems after the Six-Day War,

Moshe Dayan: Story of My Life (1976)

Breakthrough: A Personal Account of the Egypt-Israel Peace Negotiations (1981).