The ship's early RAN career was uneventful, with periods spent decommissioned in reserve, but she was reactivated in September 1939, and deployed to the Mediterranean as part of the Australian destroyer force: the Scrap Iron Flotilla.

During her time in the Mediterranean, Waterhen was involved in escort and patrol duties, performed shore bombardments, and participated in Allied evacuations from Greece and Crete.

On 29 June 1941, while operating with the Tobruk Ferry Service, Waterhen was heavily damaged by two Italian Regia Aeronautica's aircraft, dive bombers Ju 87 Stuka (renamed Picchiatello) of 239 squadriglia, flown by pilots Serg.mag.

[4] During the early part of her Mediterranean deployment, Waterhen was involved in convoy escort and anti-submarine patrols, but these were mostly uneventful until Italy entered the war in August 1940.

[4] In October, Waterhen escorted supply ships to Crete, where a forward base was being set up to assist in the Allied reinforcement of Greece.

[4] On 30 December, Waterhen accidentally rammed and sank the anti-submarine trawler HMS Bandalero, and was forced to dock for repairs.

[7] On 29 June, Waterhen and HMS Defender were making the run to Tobruk when they were attacked off Sollum by 19 Axis Junkers Ju 87 dive bombers (twelve German and seven Italian).

[7] The attack heavily damaged the Australian destroyer (although the only casualty was a wound from a flying can of bully beef); Waterhen was hit in the stern by a single 500 kg (1,100 lb) bomb dropped by the Ju 87 piloted by Maresciallo Ennio Tarantola (239th Dive Bombing Squadron, Regia Aeronautica), which caused the immediate flooding of the engine and boiler rooms.