In 1979, Pawley became the new leader of the NDP and led the party to victory in 1981 defeating the Progressive Conservative government of Sterling Lyon. As Premier, Pawley led a progressive administration that reintroduced and entrenched French language rights which had been removed earlier in the century.

Pawley's NDP was reduced to a minority government in 1986 due to the rise of the Manitoba Liberal Party under Sharon Carstairs. In 1988, Pawley's government was defeated in the legislature in a Motion of No Confidence. Pawley resigned as NDP leader and was replaced by Gary Doer, however, Pawley remained Premier for the duration of the election campaign in order to allow Doer to run for election without having to also set up an interim government. The NDP was defeated by Gary Filmon's Tories.

In his last year's as Premier, Pawley had become prominent on the national stage as an opponent of free trade as well as a party to the Meech Lake Constitutional Accord. No longer in provincial politics, Pawley ran as a candidate for the federal NDP but was defeated in the federal election of November 1988.

Pawley then left politics and became a professor at the University of Windsor where he taught until his retirement.