On wartime service with Force K, she was holed so many times by bomb fragments that she acquired the nickname "HMS Pepperpot".

At the outbreak of World War II Penelope was with the 3rd Cruiser Squadron in the Mediterranean, having arrived at Malta on 2 September 1939.

Penelope and her sister ship Arethusa were reallocated to the 2nd Cruiser Squadron in the Home Fleet and arrived at Portsmouth on 11 January 1940.

On 11 April Penelope ran aground off Fleinvær while hunting German merchant ships entering the Vestfjord.

During the ensuing Battle of the Duisburg Convoy on 9 November off Cape Spartivento, the British sank one enemy destroyer (Fulmine) and all of the merchant ships.

On 23 November, Force K sailed again to intercept another enemy convoy; next day they sank two more merchant ships, Maritza and Procida, west of Crete.

On 1 December 1941, Force K sank the Italian merchant vessel Adriatico, at 32°52'N – 2°30'E, the destroyer Alvise da Mosto, and the tanker Iridio Mantovani at 33°45'N – 12°30'E.

Breconshire was hit and taken in tow by Penelope and was later safely secured to a buoy in Marsaxlokk harbour, the whole operation was under the charge of Penelope's commanding officer, Captain A. D. Nicholl, of whose work the Naval Officer In Command (NOIC), Malta expressed appreciation.

Penelope gun-loader, Albert Hewitt, was blown off his feet but regained consciousness still safely holding a four inch shell.

On 11 July, Penelope left Malta with the 12th Cruiser Squadron as part of Force H to provide cover for the northern flank of the assault on Sicily.

During the remainder of July and August, she took part in various other naval gunfire support and sweeps during the campaign for Sicily.

Penelope left the Salerno area on 26 September with Aurora and at the beginning of October was transferred to the Levant in view of a possible attack on the island of Kos in the Dodecanese.

While the ships were retiring through the Scarpanto Straits south of Rhodes, they were attacked by 18 Ju 87 "Stuka" dive-bombers of I Gruppe Sturzkampfgeschwader 3 MEGARA.

On 27 December, the forces in this operation destroyed the German blockade-runner Alsterufer which was sunk by aircraft co-operating with Royal Navy ships.

C. S. Forester, author of the Horatio Hornblower series of sea stories set at the time of the Napoleonic Wars, published his novel The Ship in May 1943.

It is set in the war in the Mediterranean and follows a Royal Navy light cruiser in an action where it defeats a superior Italian force.