On August 17, 1862, Wallace accepted a regiment command in the Department of the Ohio to help with the successful defense of Cincinnati during Braxton Bragg's incursion into Kentucky. Next, Wallace took command of Camp Chase, a prisoner-of-war camp at Columbus, Ohio, where he remained until October 30, 1862. A month later Wallace was placed in charge of a five-member commission to investigate Maj. Gen. Don Carlos Buell's conduct in response to the Confederate invasion of Kentucky. The commission criticized Buell for his retreat, but it did not find him disloyal to the Union. When the commission's work was completed on May 6, 1863, Wallace returned to Indiana to wait for a new command. In mid-July 1863, while Wallace was home, he helped protect the railroad junction at North Vernon, Indiana, from Confederate general John Hunt Morgan's raid into southern Indiana.