In the 1870s the British military presence in Australia had declined and the individual colonies had begun planning for their own defence, culminating in the Jervois-Scratchley reports.

[2] Both Gayundah and Paluma belonged to a class of vessels that were built to a type B1 flat-iron gunboat design by builders Sir W.G.

[3] Gayundah was propelled by horizontal direct action compound steam engines, which drove two screws that were capable of producing 400 ihp (298 kW), giving her a range of 700 to 800 mi (1,100 to 1,300 km) at a cruising speed of 10.5 knots (19.4 km/h; 12.1 mph).

[6][3] During the first years of the gunboat's operation, Wright, who was also the head of the Queensland Maritime Defence Force, found that his expenses exceeded his salary, and turned to appropriating government stores and alcohol for his own use.

[7] This, along with his conduct and attitude towards running the colony's navy prompted the Queensland government to seek his removal in late 1887, although plans to immediately dismiss him were cancelled and it was determined that Wright was kept on until his appointment concluded at the end of 1888, with the proviso that he had not authority to acquire stores for Gayundah.

[8] In response, Wright threatened to report what he saw as an insult to his position to the Admiralty, and had the gunboat loaded with coal and stores, ready to depart for Sydney.

[8] Wright interpreted Taylor's actions as a mutiny, had him arrested, wrote several letters of protest to his superiors and others, ordered Gayundah's aft 6-inch gun to be aimed at the Queensland Parliament, and threatened to take the gunboat to sea if further challenges to his authority were made.

After failing to order them off his ship, Wright composed another letter of protest, released Taylor, and allowed himself to be escorted ashore by the police.

The historic message sent to the receiving station in Brisbane read: "Gun drill continued this afternoon and was fairly successful – blowing squally and raining – prize firing tomorrow.

At Scott Reef, on 25 May, Gayundah boarded and detained two Dutch schooners with illegal catches of trepang (sea cucumber) and trochus shell, and escorted them into Broome on 29 May.

In 1917, due to the threat posed by German raiders such as SMS Seeadler, Gayundah patrolled off Port Jackson and in the Spencer Gulf, although she made no contact with enemy ships during this time.