Moving up the ranks of the military, Powell became a major in 1966. The highlight of the period was his impressive performance at the United States Army Command and General Staff College, where he distinguished himself by graduating second in his class. He was sent back to Vietnam in 1968, to work under General Charles Gettys. Once again, Powell was wounded, this time in a helicopter accident; despite his injuries, he saved other servicemen from the burning site of the crash, a deed that earned him his second Purple Heart and a Soldiers Medal.

On his return from Vietnam in 1969, Powell was promoted to lieutenant colonel. He earned an MBA from George Washington University in 1971, and received his first political appointment a year later, as a White House fellow assigned to work in the Office of Management and Budget (OMB) under the Nixon administration. His tenure at the OMB afforded him the opportunity to work with Caspar Weinberger and Frank Carlucci, Director and Deputy Director of the OMB respectively. They held Powell in high esteem, and would both, in later years, figure prominently in his political advancement.

Capitalizing on Powell's reputation as a troubleshooter, the army assigned him to command a troubled infantry battalion in South Korea, where drug abuse and racial tensions threatened to paralyze the unit. The following year, he was re-stationed in the U.S., working in the Pentagon. In rapid succession, he enrolled in a nine month program at the National War College, was made a full colonel, and in 1976 was assigned to lead the 2nd Brigade of the 101st Airborne Division at Fort Campbell, Kentucky. Powell returned to the Pentagon in 1977, although not for long. By 1979, he had been promoted to brigadier general and went on to work briefly as Charles Duncan's aide in his capacity as Secretary of the Energy Department.

Powell's professional ascent continued unchecked through the 1980s. In 1981, he took on a military assignment, taking command of the Fourth Infantry Division at Fort Carson, Colorado. Secretary of Defense Caspar Weinberger, Powell's former superior at the OMB, then appointed him senior military assistant. His job was to act as a bridge between the Pentagon and the White House, a role in which he excelled. By mid 1986, Powell had been promoted to lieutenant general, commanding the Fifth Corps in Frankfurt, Germany. The Iran-Contra debacle and ensuing restructuring in Washington resulted in Frank Carlucci's appointment as national security adviser. Carlucci requested that Powell be recalled to Washington as his deputy and, although initially hesitant, Powell agreed. In 1987, when Carlucci was appointed secretary of defense, Powell received a corresponding promotion, to national security adviser. As national security adviser, Powell advocated a strong military budget but opposed the heavy spending on the space-based Strategic Defense Initiative (nicknamed Star Wars). He served as national security adviser until President Ronald Reagan's term ended in January 1989. In April, Powell became a four-star general.

In 1992, Democratic candidate Bill Clinton was elected president. Living up to a campaign promise, Clinton began exploring measures to end the ban on gays in the military. Powell opposed the endeavor and it was largely through his efforts that the 'Don't ask, don't tell' policy was established, whereby gays were allowed in the armed forces as long as they did not reveal their sexual orientation. Clinton and Powell also disagreed over Clinton's proposal to drastically cut the military budget.

In September of 1993, Powell retired from the military. This move fueled intense national speculation that he intended to run for president against Clinton in 1996. Powell never refuted the rumors, concentrating instead on promoting his 1995 autobiography, My American Journey. At the end of the book tour, Powell announced that he would not run for the presidency, and retired into private life.