When Alabama seceded in 1861, Gracie enlisted in the Confederate States Army. In June 1861, he was created a major of the 11th Alabama Regiment. From March to April 1862, he commanded a small company of sharpshooters, who were some of the first to reinforce General Magruder during the Battle of Yorktown. In July of that year, Gracie was put in command of a brigade near Chattanooga, Tennessee, consisting of the 43rd Alabama Infantry, 55th Georgia Infantry, 12th Georgia Infantry, 1st Georgia Artillery, and 1st Florida Dismounted Regiment. Through his successes in Huntsville, Tennessee, he was promoted to brigadier general on November 4, 1862, at the age of 29. His company was the guard of the rear of General Bragg's army in Harrodsburg during his retreat from the Battle of Perryville, and during his retreat after the Tullahoma Campaign. General Gracie's command took an active role during the Battle of Chickamauga, where he lost over 700 men.