When General Andrés de Santa Cruz organized his army to consolidate his proposed Peru-Bolivian Confederation, after intervening in Peruvian politics at the request of that republic, Peñailillo was already a second lieutenant and marched as part of the famous fourth battalion, Santa Cruz's favorite unit.

In this unit, he built his career as a subordinate, earning laurels that honored his battalion's standard and also experiencing defeat on the fields of Yungay.

[2][3] Upon returning to the country, Peñailillo was promoted to sergeant major on 16 January 1840, and assigned as the third in command of the 12th battalion, with which he fought at the Battle of Ingavi on 18 November of the same year.

Peñailillo participated in the five-month campaign in Peru, at the end of which he was promoted to graduated lieutenant colonel and assigned as the second in command of the 8th battalion, distinguishing himself for his rectitude and military severity.

Surrounded and solicited by politicians, suffocated by the intrigue-filled atmosphere in which he lived, and influenced by those in power, Peñailillo succumbed to the suggestions of demagogues and supporters of General José Miguel de Velasco, the most popular leader of those years.