He was head coach of the West Germany national team between 1978 and 1984, winning the UEFA Euro 1980 and reaching the final of the 1982 FIFA World Cup.

In 1970, Derwall was appointed as successor to Udo Lattek as the West German national team's assistant coach under the legendary Helmut Schön.

When Schön retired from managing, also in light of the achievements in the tournament, Derwall was chosen to take his place as head coach of West Germany.

His major rivals for this appointment were his coaching staff colleague Erich Ribbeck and Helmut Benthaus, then manager with the reigning German champions VfB Stuttgart, who received no release from his contract.

He in the end, of what amounted to a public campaign, was forced to resign his position, being replaced by the hitherto-untested Franz Beckenbauer who acted as team manager.

Derwall then shocked observers by turning down several job offers in the Bundesliga in favour of accepting the manager's position at Turkish club Galatasaray.

The arrival of Derwall, an internationally respected and experienced manager, changed this perception, and his tenure at Galatasaray is often credited with having helped spark the revival in the fortunes of Turkish football.

His work in Turkey was also considered a major contribution to German-Turkish relations and was honoured with an honorary doctorate of the University of Hacettepe in Ankara and the German Cross of Merit 1st Class (Bundesverdienstkreuz).