Smallwood led what remained of his regiment to fight "alongside soldiers from Connecticut, Delaware, and New York" in the Battle of White Plains, when he was twice wounded but "prevented the destruction of the entire Continental Army".

On December 21, 1777, Smallwood commanded 1,500 Delaware and Maryland troops at the Continental Army Encampment Site on the east side of Brandywine Creek, to prevent occupation of Wilmington by the British and to protect the flour mills on the Brandywine. He continued to serve under George Washington in the Philadelphia campaign, where his regiment again distinguished itself at Germantown. He was then quartered at Foulke House, which was occupied by the family of Sally Wister.

In 1780, he was a part of General Horatio Gates' army that was routed at Camden, South Carolina; his brigade was among the formations that held their ground, garnering Smallwood a promotion to major general. Smallwood's accounts of the battle and criticisms of Gates' behavior before and during the battle may have contributed to the Congressional inquiries into the debacle. Opposed to the hiring and promotion of foreigners, Smallwood objected to working under Baron von Steuben. Smallwood briefly commanded the militia forces of North Carolina in late 1780 and early 1781 before returning to Maryland, staying there for the remainder of the war.