In 1921 Douglas returned to Arizona, engaging in copper mining and citrus farming, and almost immediately entered Arizona state politics as a Democrat. A strong advocate of free markets and a vocal opponent of government intervention and spending, from 1927 to 1933 he served as U.S. congressman for Arizona.
Appointed director of the budget in 1933 by Democratic President Franklin D. Roosevelt, Douglas was initially one of Roosevelt's closest advisors, but Douglas's distaste for the New Deal's extensive statism, free spending, and deficit budgets caused his resignation in August 1934. He soon became a vocal critic of Roosevelt's policies, and in the 1936 and 1940 presidential elections Douglas campaigned for Republican candidates Alf Landon and Wendell Willkie. From 1940 to 1972 Douglas was a leading executive of the Mutual Life Insurance Company of New York.
As World War II began, Douglas strongly supported U.S. assistance to Great Britain and intervention in the conflict, positions that led him to join the Committee to Defend America by Aiding the Allies, endorse Roosevelt's international policies, and champion the president's 1941 Lend-Lease Act. After several months expediting Lend-Lease aid to Britain, from February 1942 to March 1944 Douglas was deputy administrator of the War Shipping Administration.
After World War II, Douglas spent three months in 1945 as economic advisor to U.S. Lieutenant General Lucius D. Clay in Germany. Clay became a strong proponent of German economic recovery and reintegration into Western Europe, policies that he considered crucial to resisting the spread of communism. In 1947 President Harry S. Truman appointed Douglas ambassador to Great Britain. He held that post until 1950, playing a major role in Anglo-American negotiations to formulate and implement the Marshall Plan, German currency reform, the North Atlantic Treaty Organization (NATO), and policy toward Palestine. He also helped to orchestrate British and American responses to the 1948–1949 Berlin Blockade and the outbreak of the Korean War.
In 1950 a fishing accident left Douglas blind in one eye, and he resigned his position in November 1950, returning to Tucson, Arizona, to pursue his business, educational, and political interests. An early critic of Senator Joseph McCarthy's virulent anticommunism, in 1964 Douglas refused to support conservative Arizona Republican Senator Barry Goldwater's presidential campaign. In the 1960s Douglas also opposed the burgeoning U.S. involvement in Vietnam. Douglas died on 7 March 1974 in Tucson, Arizona.
Smith, Thomas G. "From the Heart of the American Desert to the Court of St. James: The Public Career of Lewis W. Douglas of Arizona, 1894–1974." Unpublished PhD diss., University of Connecticut, 1977.