In 1913, a participant in the Labor discussion groups, Eliza Burnell, introduced him to her 15 year old daughter, Enid Burnell, a trainee teacher and they were married two years later. She was a strong minded woman who exercised great influence over Lyons, while raising their eleven children.

When the ALP split over conscription during the First World War in 1916, Earle, a pro-conscriptionist, followed Prime Minister Billy Hughes out of the Labor party. Like most Australians of Irish Catholic background, Lyons was an anti-conscriptionist and stayed in the Labor Party, becoming its new leader in Tasmania.

He led the Labor opposition in the Tasmanian Parliament until 1923 when he became Premier, leading a minority ALP government. He held office until 1928, also serving as Treasurer during the whole period of his premiership. Lyons' government was cautious and pragmatic, establishing good relations with business and the conservative government in Canberra, but attracting some criticism from unionists within his own party. Labor narrowly lost the 1928 state election to the Nationalist Party.

At the 1929 election, Lyons entered Federal politics, winning the seat of Wilmot in Labor's landslide victory under James Scullin. He was appointed Postmaster - General and Minister for Works and Railways.

When the Depression struck in 1930, the Scullin government split over its response. Lyons became the leading advocate within the government of orthodox finance and deflationary economic policies, and an opponent of the inflationary, proto - Keynesian policies of Treasurer Ted Theodore. Theodore was forced to resign over accusations of corruption in June 1930, and Scullin took over the Treasury portfolio in addition to the Prime Ministership. Lyons served as acting Treasurer from August 1930 to January 1931 while Scullin was in Britain for the Imperial Conference. In October 1930 Lyons announced his plan for recovery, insisting on the need to maintain a balanced budget and cut public spending and salaries, although also advising lower interest rates and the provision of greater credit for industry.

His conservative economic approach won him support among business, but angered many in the Labor caucus, who wanted to expand the deficit to stimulate the economy, and were horrified at the prospect of cuts in salaries and government spending. Alienated by their attacks, Lyons began to consider suggestions from a group of his new business supporters, including influential members of the Melbourne Establishment, that he leave the government to take over the leadership of the conservative opposition.

When Scullin returned in January 1931, he reappointed Theodore (as it had become clear Theodore would not be charged with corruption) to the Cabinet as Treasurer, which Lyons took as a rejection of his own policies. Lyons immediately resigned from the Cabinet, and then in March from the Labor Party. Accompanied by another senior minister in the Scullin government, James Fenton, and three other right wing Labor MPs, he formed the "All for Australia League" and crossed the floor to sit on the opposition benches. The opposition Nationalist Party and the five dissident Labor MPs (as well as three conservative independent MPs) soon merged to form a new party, the United Australia Party.

Although the new party was basically the Nationalist Party under a new name, Lyons was chosen as leader of the party (and thus became Leader of the Opposition) rather than the old Nationalist leader John Latham, as it was recognised that (as an affable family man with the common touch) he was a far more electorally appealing figure than the aloof Latham, and his Labor background and his Catholicism would allow him to win traditional Labor support groups (working class voters and Irish Catholics) over to the new party.

In March, at about the same time as Lyons led his group of defectors from the right of the Labor Party across the floor, 5 left wing NSW Labor MPs, supporters of New South Wales Premier Jack Lang, also split from the official Labor Party over the government's economic policies (for Lyons they had been too radical, for the Langites they were not radical enough), forming a "Lang Labor" group on the cross benches. The government had now lost its majority in the House of Representatives. Late in the year, the Langite MPs decided to vote with the UAP to pass a motion of no confidence in the government and force an early election.

The election was held in December 1931. Lyons and the UAP offered stable, orthodox financial policies, and portrayed an image of putting national unity above class conflict (given credibility by Lyons, a man of working class, Labor background, leading a conservative, largely middle and upper class party), while Labor remained split between the official party and the Langites. The result was a huge victory for the UAP. The new government was sworn in January 1932. Lyons became the third former Labor Party MP to become a non-Labor Prime Minister.

The UAP had the numbers in Parliament to govern on its own in Lyons's first term. After the 1934 election it governed in the traditional conservative coalition with the Country Party. Until 1935 Lyons served as Treasurer as well as Prime Minister. In office, Lyons followed the same conservative financial policy he had advocated during the Scullin government, cutting public spending and debt. He benefited politically from the gradual worldwide recovery that took place after 1932.

In foreign affairs he supported Britain with little criticism, and was a strong supporter of the League of Nations. His government tended to support the conciliation of the dictatorships of Germany, Italy, and Japan to avoid another world war, but he did prepare somewhat for such a prospect with an expansion of the armed forces, the opening of an aircraft factory, and the planning of new munitions factories and shipyards.

At the 1934 election the ambitious and talented Robert Menzies entered Parliament, and was immediately seen as Lyons's successor, although he denied that he was seeking to displace Lyons. The government won a third term in 1937. However, as the international situation darkened in the late 1930s, Lyons, a lifelong pacifist, became increasingly depressed. Most politicians expected that he would soon be replaced by Menzies, who resigned from Cabinet in protest at the government's inaction on the national insurance scheme. On 7 April 1939, in Sydney, Lyons died suddenly of a heart attack – the first Australian Prime Minister to die in office. He was 59 years old.

Lyons was one of the most genuinely popular men to hold the office of Prime Minister, and his death caused widespread grief. His genial, laid-back appearance often led to cartoon portrayal as a sleepy koala. A devout Catholic, he was the second Catholic to become Prime Minister, after his immediate predecessor Scullin, and the only non-Labor Catholic Prime Minister to date.

He is the only person in Australian history to have been Prime Minister, Premier of a State, and Leader of the Opposition in both the Federal Parliament and a State Parliament (although George Reid had served as Premier of a colony before Federation). Lyons is also Australia's only Prime Minister to come from Tasmania.

He was the only Australian Prime Minister to be in office during the reigns of three monarchs (George V, Edward VIII, and George VI), and the only Australian Prime Minister who was in office continuously throughout a monarch's entire reign (Edward VIII).

Dame Enid Lyons later went into politics in her own right, in 1943 becoming the first woman to sit in the House of Representatives, and later the first woman Cabinet Minister in the Menzies' Liberal government. Two of their sons later became involved in Tasmanian state politics in the Liberal Party: Kevin Lyons was Deputy Premier between 1969 and 1972 and Brendan Lyons served in the ministry of Robin Gray during the 1980s.

The Australian federal Division of Lyons and the Canberra suburb of Lyons, Australian Capital Territory are both named jointly in honour of Joseph Lyons and his widow Dame Enid Lyons.

In 1975 he was honoured on a postage stamp bearing his portrait issued by Australia Post.