In the winter of 1860, Steele was ordered to Fort Leavenworth, Kansas. Fort Leavenworth was the main arsenal depot for the Army of the West. Steele had almost twenty-one years of service, most of it with the 2nd Dragoon Regiment. He had reached the rank of Captain, average for the period.
In April 1861, Southern sympathizers raided the Liberty, Missouri arsenal (located just north of Kansas City and southeast of Fort Leavenworth). The War Department immediately ordered Steele to make ready for war. He was ordered to secure the government stores and arsenal at Fort Leavenworth. Captain Steele armed the two companies of Leavenworth militia and prepared the troops at the fort in case of an attempt to capture it.
When his duties were completed, he returned to his headquarters and penned his resignation to the US Army. He and his wife left the fort and headed to Texas. He was superseded by Captain Nathaniel Lyon.
Appointed colonel of the 7th Texas Cavalry Regiment, he took part in Brigadier General Henry Hopkins Sibley's efforts to clear the New Mexico area of Union presence. Promoted to brigadier general on 12 September 1862, he took command of Indian Territory, and then placed in charge of the defenses of Galveston, Texas in March of 1864. Steele took part in the Red River Campaign, temporarily assuming divisional command. He remained in the Trans-Mississippi Department until the end of the war. When the War Between the States ended, Steele became a commission merchant in San Antonio, Texas. He moved to Austin, Texas in 1873, and was appointed Adjutant General of the state.
Steele returned to San Antonio, and died there, on 12 January 1885. He is buried in Austin, Texas under a large monument commemorating his Confederate service and that of Adjutant General of Texas.
Brig General William Steele Camp #1857 chartered June 22, 1999 in Leavenworth, Kansas under the command of Ret. Lt. Col. Edwin L. Kennedy. Meetings are held 6:00pm fellowship, 7:00pm program the second Thursday of each month Village Square Restaurant, Leavenworth, Kansas.