In common with most politicians of his era, McIlwraith was an influential businessman, who combined his parliamentary career with a prosperous involvement in the pastoral industry.

He quickly worked to ameliorate the colony's finances and with the assistance of a return of agricultural prosperity he turned the budget deficit into a surplus.

McIlwraith took the extraordinary step of attempting to annex New Guinea for Queensland; he employed Henry Chester to proclaim the Queen's sovereignty which occurred on 4 April 1883.

Indignation at this apparent slight to colonial prerogatives incited the gathering of an Intercolonial Convention in November and December 1883, with federation and annexation on its agenda.

However, a well-informed German Navy had secretly landed, annexing the northern coast under the name ‘Kaiser-Wilhelmsland’ three days earlier.

[12] The following day an irate McIlwraith told the Queensland parliament that British conduct in this affair constituted "the grossest piece of treachery on the part of the English government to the colonies that has ever been perpetrated".

Musgrave died in October and McIlwraith petitioned the new Colonial Secretary Lord Knutsford, to allow the Queensland government to be consulted on the choice of governor.

The local legislature problematically declined to ratify the appointment,[14] but henceforth it was understood that the colonies would be consulted in vice-regal appoinyments.

In November of that year ill-health forced McIlwraith to resign in favour of Boyd Dunlop Morehead, whereupon he travelled to China and Japan.

After his return McIlwraith's relationship with his colleagues deteriorated, and in August 1890 he formed an alliance (later known as the "Continuous Ministry") with his erstwhile foe to become Treasurer in the government of Sir Samuel Griffith.

Although McIlwraith left for England on 15 January 1895, he was still a minister of the Queensland cabinet until 25 November 1897 when the Labor Party with government support succeeded in passing a resolution that he should retire.

McIlwraith's aspirations for political integration of the Australian colonies centred on the Federal Council of Australasia, and he actively sought the entry of New South Wales into this body.