In his later life, he returned to New South Wales as a private citizen, raising a family in the colony and establishing a successful farm around Annandale in Sydney.

[4][5][6] On arrival in New South Wales, Johnston served as adjutant to Governor Arthur Phillip, and was promoted in 1789 to the rank of Captain-Lieutenant of Marines.

In the same year Johnston was put under arrest by Lieutenant Governor William Paterson on charges of "paying spirits to a sergeant as part of his pay—and disobedience of orders".

In 1803 Johnston took temporary command of the New South Wales Corps during the illness of Paterson, and became involved in the conflict between King and the military.

[7] On 26 January 1808, Johnston played a key role in the only successful armed takeover of a government in Australia's recorded history, the Rum Rebellion, working closely with John Macarthur.

Johnston led the troops that deposed Governor William Bligh, assumed the title of lieutenant-governor, and illegally suspended the judge-advocate and other officials.

[7] Johnston was promoted to the rank of lieutenant-colonel on 25 April 1808, and was superseded by his senior officer Joseph Foveaux, who was Lieutenant-Governor of Norfolk Island, on 28 July.

[7] Johnston returned to New South Wales in May 1813 as a private individual and in November the following year at St John's Church in Parramatta he married Esther Abrahams,[9] a Jewish convict whom he had met on the transport Lady Penrhyn in 1787.