In mid-1940 Indochina became controlled by Vichy France and was occupied by the Empire of Japan later that year. As the prospect of war between the Allies and Japan loomed, Lyon undertook covert operations with Free French sympathisers in Indochina. After Japan invaded Malaya on 8 December 1941, Lyon's wife and son found themselves behind enemy lines and they spent the war in Japanese internment after the ship they were travelling on was intercepted by a German raider and they were taken prisoner. As the Japanese advanced towards Singapore, Lyon worked to form resistance groups among the local population. Later, he evacuated civilians from Singapore by boat, until its fall to the Japanese, in February 1942. During this period he met an Australian named Bill Reynolds, who operated a small ship called "Kofuku Maru".