When Xie died later that year, Sima Daozi became the head of the government under Emperor Xiaowu, who entrusted his brother with most important affairs of state.
Both Emperor Xiaowu and Sima Daozi were described to be spending much of their times with drinking and feasting, rather than with important affairs of state.
A number of politicians who wanted power gathered around Sima Daozi and flattered him, causing him to be less and less deferential to the emperor.
He was also known for being obsessed with gathering wealth and for extravagance in living—including constructing an artificial hill in the back of his mansion, an excessively expensive and difficult task.
Emperor Xiaowu eventually became angry about the situation, and he commissioned the well-known officials Wang Gong (王恭) and Yin Zhongkan (殷仲堪) to be provincial governors to counteract Sima Daozi's authority.
Huan Xuan was so struck by the statement that he fell prostrate on the ground, fearing that Sima Daozi would kill him, and from this point he bore a grudge against the prince.
In 396, Emperor Xiaowu, after offending his favorite concubine Honoured Lady Zhang, was suffocated by her in his sleep.
When Sima Daozi awoke from his stupor, he was enraged, but after that point his power became extremely limited, even though he nominally remained regent.