When the American Revolutionary War broke out, Stephen offered his services to the Continental Army, again serving under Washington. He was with the army during the New York and New Jersey campaigns of 1776 and early 1777, and, as a major general, was given command of a division in Washington's army during the defense of Philadelphia. In the October 1777 Battle of Germantown, Stephen's men fought in the fog with troops led by General Anthony Wayne. Stephen was accused of being drunk during the battle and after being convicted in a court martial, was stripped of his command and cashiered out of the army, making him the only Continental army general court-martialed and immediately dismissed from the service during the war.