After 1918 Territorial training was resumed but it was not until 1926 that its scale approached that laid down in the Defence Act. In 1930 compulsory military training was suspended for economy reasons, and the Territorial Force was reorganised on a basis of voluntary enlistment. The compulsory sections of the Defence Act were not invoked again, and in the nine months after the outbreak of war in September 1939, in which the voluntary system operated, approximately 60,000 men volunteered for service with the forces. Conscription was introduced in the National Service Emergency Regulations of 1940. Under these a General Reserve was formed – all males between 16 and 46 automatically becoming members. Voluntary enlistment ended on 22 July 1940 when all males between 18 and 46 became liable to be called up by ballot. New regulations, issued on 22 June 1942, made any member of any armed service liable to serve whenever required, whether in New Zealand or elsewhere and, as a matter of policy, no soldier under 21 was permitted beyond New Zealand. This wartime version of compulsory military service was administered by the National Service Department, which was responsible for recruiting and training men for service overseas with each of the three Services. The Department also built up a reserve force for home defence. By the end of 1941 the combined Services' strength (including Territorials) was over 109,000 men.

With Japan's entry into the war in December 1941, policy was changed to concentrate upon home defence. Military and industrial mobilisation was intensified, and by July 1942 the combined Services strength stood at 154,549, representing 43 percent of the eligible population. Of these, 58,200 were serving overseas. Following enemy reverses at Guadalcanal and El Alamein and the consequent easing of pressure on home defence, policy changed to emphasise overseas service. In 1942 a Third Division was dispatched to the Pacific area, and during 1943 this was increased to 18,000 men. Manpower difficulties at home rendered it impossible to maintain divisions both in the Middle East and in the Pacific areas and, as the production of foodstuffs and supplies appeared of crucial importance, the Government decided, in April 1944, to recall the Third Division who were quickly reabsorbed into essential work, or as reinforcements for the Division in the Middle East.

In September 1944 the Government adopted a scheme to replace all men in the Middle East Division who had served overseas for three years or longer. To do this, since the number of men reaching military age was inadequate, a large number of men were withdrawn from key industries and from the Third (Pacific) Division. Middle East, Air Force, and Naval establishments were maintained until the end of the war, but only at the expense of industrial manpower. Up to November 1944, 340,846 men had been called up for military service and, of these, 80,959 served overseas, including volunteers.

Within four years of the end of the war New Zealand realised that the country's collective defence commitments would require holding a strong force in readiness. This necessity induced the Labour Government to reverse its traditional attitude towards peacetime compulsory military training. In May 1949 the annual conference of the Labour Party rejected the proposal, with the result that on 25 May Fraser, the Prime Minister, announced that a referendum would be taken. This was held on 3 August 1949 and strongly approved the reintroduction of compulsory military training. Under the Compulsory Military Training Act of 1949 all males, whether European or Maori, became liable for military service upon reaching 18 years of age. Trainees had to undergo 14 weeks' intensive, full-time training, three years' part-time service, followed by six years on the Army Reserve. All trainees were allowed the option of serving with the Army, Navy, or Air Force.