When Anastasio Somoza García took power in 1936, the party aligned itself with the United States and other caudillos in Latin America, like Rafael Trujillo, Oswaldo López Arellano, and Fulgencio Batista.

From 1936 to 1979, the office of President of Nicaragua was held by members of the Nationalist Liberal Party.

When the first phase of the Nicaraguan Revolution was won by the FSLN, the PLN was dissolved by the new government.

The party suffered several splits: in 1944, opposing Anastasio Somoza García's intentions to re-run for the presidency, dissident party members such as Manuel Cordero Reyes, Roberto González Dubón, Carlos Morales, Gerónimo Ramírez Brown (minister of public education from 1939 to 1944) and Carlos Pasos formed the new Independent Liberal Party, that functioned for decades to come as a legal, centrist opposition party and briefly sided with the Sandinistas to overthrow Somoza Debayle and cement the victory of the Nicaraguan Revolution.

In 1968, another group of members, led by Ramiro Sacasa Guerrero (former minister for labor), split from the Nationalist Liberal Party, disagreeing with Anastasio Somoza Debayle's ambition to re-run.