On 3 October 1988, Lajolo was appointed Secretary of the Administration of the Patrimony of the Apostolic See and Titular Archbishop of Caesariana[2] by Pope John Paul II.

He received his episcopal consecration on 6 January 1989 from John Paul, with archbishops Edward Idris Cassidy and José Tomás Sánchez serving as co-consecrators, in St. Peter's Basilica.

Lajolo was named Nuncio to Germany on 7 December 1995, and Secretary for Relations with States on 7 October 2003.

He went on to say that "government and taxation policies may limit the rights of parents to choose a religious education for their children or may penalise the charitable work of the church by not recognising its nonprofit status.

He was made Cardinal-Deacon of Santa Maria Liberatrice a Monte Testaccio in the consistory of 24 November 2007.

He was made a member of the Congregation for Bishops, Pontifical Council for Culture, and Administration of the Patrimony of the Apostolic See (of which he had once been Secretary) on 12 June 2008.