In 1985, he was briefly the chairman of the ruling Military Council and de facto head of state of Uganda, and later, lieutenant-general and chief of the armed forces.

During the civil war in Uganda between the UNLA (which was now the national army) and Yoweri Museveni's National Resistance Army, president Milton Obote alienated much of the Acholi-dominated officer corps, including Olara-Okello and General Tito Okello, by appointing his fellow ethnic Lango, Brigadier Smith Opon Acak, as army Chief of Staff.

On 27 July 1985, an army brigade of the UNLA commanded by Olara-Okello, and composed mostly of Acholi troops, staged a coup d'état against Milton Obote's government and seized power.

Between 27 and 29 July 1985, Olara-Okello was Chairman of the Military Council, and de facto head of state.

Olara-Okello fled to exile in Sudan, where he lived until he died in Omdurman Hospital in Khartoum on 9 January 1990.