He came to wider attention during Bloody Sunday in January 1972, waving a blood-stained white handkerchief as he escorted a group carrying a mortally wounded protester after British troops opened fire on demonstrators.

[4] During his time in Derry, he took part in the civil rights marches; he had first-hand experience of the Battle of the Bogside in 1969, the early years of the Troubles, internment, and the events of Bloody Sunday, in which British soldiers fired on unarmed protesters on 30 January 1972, killing 14 people.

Daly became a public figure after he was witnessed using a blood-stained handkerchief as a white flag in an attempt to escort 17-year-old Jackie Duddy, a wounded protester, to safety.

Duddy died of his injuries soon after and Daly administered the last rites; he later described the events as "a young fella who was posing no threat to anybody being shot dead unjustifiably".

[9] Years later, Daly opined that the events of Bloody Sunday were a significant catalyst to the violence in Northern Ireland, and that the shootings served to greatly increase recruitment to the IRA.

The Catholic bishops of Ireland discussed the possibility of excommunicating IRA members several times during Daly's tenure, often in the aftermath of a particularly bloody attack, though no decision was ever reached.

Daly described the bombings as having "crossed a new threshold of evil", and believed that while they may claim to be Catholics, "works proclaim clearly that they follow Satan".

[8] Among many joint projects Daly and Mehaffey co-founded two charities with the intent to promote community healing in Derry after years of sectarian violence.

[12][4][15] The Saville Inquiry was established by British Prime Minister Tony Blair in 1998 as part of the Northern Ireland peace process in order to re-investigate the events of Bloody Sunday.

He gave evidence to the inquiry in which he repeated his affirmation that the protesters had not been armed and described the sequence of event surrounding Jackie Duddy's death.

Lord Saville believed that armed men were likely present, but did nothing that would prompt the army to open fire, and that many of the soldiers involved had lied in their accounts of their actions, though the shootings were not premeditated.

Hutchinson controversially concluded that the Catholic Church, the British government, and senior police officers covered up the allegations, and hampered the detectives' attempts to investigate them by having the priest moved to a parish in the Republic of Ireland.

[21][22] Daly died on 8 August 2016 at the age of 82,[23][10] at Altnagelvin Area Hospital in Derry, having been admitted after a fall several weeks previously; he had also been diagnosed with cancer.

[10][24] Public figures including the Irish president, Michael D. Higgins, and his predecessor Mary McAleese paid tribute to Daly's work for peace during the Troubles, as did the leaders of various religious denominations in Derry.

[27] Daly was never comfortable with the public profile he gained following his actions on Bloody Sunday and did not enjoy his duties as a bishop, particularly disliking the administrative responsibilities that came with the post.

[9] He was happier performing pastoral ministry, and felt that the years after his retirement as a bishop—which he spent tending to terminally ill hospice patients—were his "most fulfilling as a priest".

His coffin was sealed at midday on 11 August 2016 and buried after Requiem Mass in the grounds of St Eugene's Cathedral alongside his predecessor as Bishop of Derry, Neil Farren.