Palmer took part in the capture of New Madrid and Island No. 10, commanding a division in the latter campaign. Taken ill in the field, he returned home to recuperate and raised a new regiment, the 122nd Illinois Infantry. Taking the field again in September, he was assigned by William S. Rosecrans to command the first division of the Army of the Mississippi in Alabama and Tennessee. On November 29, 1862, he was promoted to major general of volunteers, and was conspicuous in the Battle of Stones River, where his division held an important position within the Union lines.