At the beginning of 1583, Stanley was sent back to Ireland to deal with the rebel Geraldines of Desmond, and was appointed by the Earl of Ormond as commander of the garrison at Lismore; he was also Constable of Castle Maine, which he intended to "make a town of English", and granted the lands of the former Killagha Abbey.
The defeat of the rebels presented many opportunities for advancement to the New English, those adventurers and administrators who had taken advantage of crown policy in Ireland to establish fortunes for themselves outside of their restricted circumstances at home.
On 1 January 1585, the enemy took him completely by surprise in camp beside the abbey, when half a dozen horsemen at the head of the Scots foot set the thatched roof of the church on fire.
Stanley was forced to fight in his shirt, having had no time to don armour, and was wounded in the thigh, the arm and side, and in the back (he claimed he had turned to his men to urge them on).
Some of the horse were burned in the abbey, and the enemy fell away without pursuit, and soon after twenty-four oared galleys of the Scots rowed across Ballycastle Bay while Stanley's ships remained at anchor in flat calm conditions.
En route he stayed in London, where it was reported that he had been in the confidence of Jesuits and privy to part of the Babington Plot, and that he had corresponded with the Spanish ambassador, Mendoza, and with the Tower-bound Earl of Arundel.
Cardinal William Allen published a letter at Antwerp justifying Stanley's actions and setting out the case for the assassination of Elizabeth I as an act of tyrannicide, citing Pope Pius V's 1570 papal bull Regnans in Excelsis.
At the time, the queen had been considering Stanley for honours and titles, including his appointment as viceroy of Ireland; but he was almost certainly in complete sympathy with the Jesuits, which order his brother had joined and whose members sang his praises.
Thereafter he plotted an invasion of England – the troops to disembark at Milford-Haven and in Ireland, where bases for the larger operation might be established – but he was disappointed at the countenance he received from the Spanish authorities, although they did award him a crown pension, in the 1580s amounting to 300 escudos per month (the arrears of which he had to pursue in later years).
After the failure of the Armada, Sir William Fitzwilliam, lord deputy of Ireland, speculated that Stanley might be chosen to lead the Spanish army in any further attempt to invade England.
Sir Robert Cecil exonerated him from complicity in the Gunpowder Plot, but he never gained permission to visit England and spent the rest of his life in relative obscurity.