Forbes remained a backbencher for some time, but was made the Liberal Party's Whip when party leader Thomas MacKenzie became Prime Minister. He retained this position when his party went into Opposition. However, his status within the party was considerably higher than his official responsibilities indicated, although few thought of him as a potential leader.
By the early 1920s, the Liberal Party was facing a decision as to its political future. The Reform Party government of William Massey was dominant, having secured the conservative vote, but Liberal's progressive voter base was being undermined by the growing Labour Party. Many members of the Liberal Party believed that an alliance with Reform was inevitable, saying that it was necessary to counteract the "radicalism" of the Labour Party. When Massey died in 1925, Liberal leader Thomas Mason Wilford decided to approach Massey's successor with a merger proposal, suggesting that the new party could be called "the National Party". Forbes was chosen to represent the Liberal Party at a joint conference. The new Reform Party leader, Gordon Coates, rejected the proposal, although Wilford declared that Liberal would adopt the name "National" regardless.
The party's poor fortune did not last long, however. In 1927, Liberal Party politician William Andrew Veitch secured an alliance with Albert Ernest Davy, a former Reform Party organizer who had become dissatisfied with Reform's alleged paternalism and intrusive governance. The former Liberal Party (still known as National) absorbed Davy's new United New Zealand Political Organization, and adopted the name "the United Party". Forbes and Veitch were both candidates for the leadership of the United Party, but the position was eventually won by a former Liberal Party Prime Minister, Joseph Ward. Forbes became one of two deputy leaders, having particular responsibility for the South Island.
Under the United banner, bolstered by Reform Party dissidents, the remnants of the old Liberal Party once again gained traction. In the 1928 elections, United formed a government with backing from the Labour Party. Forbes was given responsibility for lands and agriculture. Gradually, however, Ward's health declined to the state where he was unable to carry out his duties, and Forbes became leader in all but name. In 1930, Ward finally gave his official resignation, and Forbes became Prime Minister. He also made himself Minister of Finance.
The Forbes government began to show signs of instability when the Labour Party withdrew its support. Labour was unhappy at a number of economic measures - Forbes intended them to reduce government deficit and stimulate the economy, but Labour claimed that they unnecessarily harmed the interests of poorer citizens. Forbes was forced to continue with reluctant support from the Reform Party, which now feared Labour's growing popularity.
In late 1931, Forbes called for a "grand coalition" of United, Reform, and Labour to resolve the country's economic problems. Forbes told a joint conference that he was not prepared to implement the measures he deemed necessary without broad backing. Labour refused to join this coalition, but Reform leader Gordon Coates (prompted by the party's finance spokesperson, William Downie Stewart) eventually agreed.
In the 1931 elections, the United-Reform coalition performed well, winning a combined total of fifty-one seats. Forbes remained Prime Minister, but surrendered the finance role to William Downie Stewart. Slowly, however, many people came to believe that Coates held significantly too much power, and that Forbes was too willing to give in to Coates' demands. This view was reinforced when Coates and Stewart argued over financial policy - although Forbes was known to prefer Stewart's policy, he publicly sided with Coates, and Stewart resigned.
Coates replaced Stewart as Minister of Finance, and became even more dominant in the coalition. Stewart, noting this, complained that "the Prime Minister is too passive and the Minister of Finance is too active". Both Forbes and Coates, however, were increasingly being blamed for the country's ongoing economic problems, and were unable to avoid public dissatisfaction. In the elections of 1935, the coalition government was defeated by the Labour Party, which gained fifty-five votes to the coalition's nineteen.