He began to collect inscriptions and manuscripts, and from 1870-1872 wrote a series of articles for the Ceylon branch of the Royal Asiatic Society Journal about them.

Personal differences with his superior, C. W. Twynham, caused a formal investigation, resulting in a tribunal and Rhys Davids' dismissal for misconduct.

A number of minor offenses had been discovered, as well as grievances concerning fines improperly exacted both from Rhys Davids' subjects and his employees.

He then studied for the bar and briefly practised law, though he continued to publish articles about Sri Lankan inscriptions and translations, notably in Max Müller's monumental Sacred Books of the East.

He actively lobbied the government (in co-operation with the Asiatic Society of Great Britain) to expand funding for the study of Indian languages and literature, using numerous arguments over how this might strengthen the British hold on India.