The full Virginia Regiment joined Washington at Fort Necessity the following month with news that he had been promoted to command of the regiment and to colonel upon the death of the regimental commander. The regiment was reinforced by an independent company of 100 South Carolinians led by Captain James Mackay, whose royal commission outranked that of Washington, and a conflict of command ensued. On July 3, a French force attacked with 900 men, and the ensuing battle (Battle of Fort Necessity) ended in Washington's surrender. In the aftermath, Colonel James Innes took command of intercolonial forces, the Virginia Regiment was divided, and Washington was offered a captaincy which he refused, with resignation of his commission.

At the time of the Declaration of Independence in July 1776, the Continental Congress would not legally adopt flags with "stars, white in a blue field" for another year. The flag contemporaneously known as "the Continental Colors" has historically been referred to as the first national flag.

The French then focused on the Austrians for the remainder of the war, the highlight of which became the protracted struggle for Mantua. The Austrians launched a series of offensives against the French to break the siege, but Napoleon defeated every relief effort, scoring victories at the battles of Castiglione, Bassano, Arcole, and Rivoli.

Washington grew restless in retirement, prompted by tensions with France, and he wrote to Secretary of War James McHenry offering to organize President Adams' army. In a continuation of the French Revolutionary Wars, French privateers began seizing American ships in 1798, and relations deteriorated with France and led to the "Quasi-War". Without consulting Washington, Adams nominated him for a lieutenant general commission on July 4, 1798 and the position of commander-in-chief of the armies.

The flag was changed to have 21 stars, with a new star to be added for Illinois.