Callaghan played in the 1977 European Cup Final, when Liverpool beat Borussia Mönchengladbach 3–1. But in the 1978 season, which proved his last year at the club, his playing time was reduced as younger additions like Graeme Souness and Kenny Dalglish established themselves at the club. Callaghan was on the substitutes' bench when Liverpool retained the European Cup against FC Brugge in 1978.