The court martial to consider the charges against Arnold began meeting on 1 June 1779, but was delayed until December 1779 by General Clinton's capture of Stony Point, New York, throwing the army into a flurry of activity to react. In spite of the fact that a number of members of the panel of judges were men ill-disposed to Arnold over actions and disputes earlier in the war, Arnold was cleared of all but two minor charges on 26 January 1780. Arnold worked over the next few months to publicize this fact; however, in early April, just one week after Washington congratulated Arnold on the 19 May birth of his son, Edward Shippen Arnold, Washington published a formal rebuke of Arnold's behavior.
Shortly after Washington's rebuke, a Congressional inquiry into his expenditures concluded that Arnold had failed to fully account for his expenditures incurred during the Quebec invasion, and that he owed the Congress some £1,000, largely because he was unable to document them. A significant number of these documents were lost during the retreat from Quebec; angry and frustrated, Arnold resigned his military command of Philadelphia in late April.
Early in April, Philip Schuyler had approached Arnold with the possibility of giving him the command at West Point. Discussions between Schuyler and Washington on the subject had not borne fruit by early June. Arnold reopened the secret channels with the British, informing them of Schuyler's proposals and including Schuyler's assessment of conditions and West Point. He also provided information on a proposed French-American invasion of Quebec that was to go up the Connecticut River. (Arnold did not know that this proposed invasion was a ruse intended to divert British resources.) On 16 June Arnold inspected West Point while on his way home to Connecticut to take care of personal business, and sent a highly detailed report through the secret channel. When he reached Connecticut Arnold arranged to sell his home there, and began transferring assets to London through intermediaries in New York. By early July he was back in Philadelphia, where he wrote another secret message to Clinton on 7 July which implied that his appointment to West Point was assured and that he might even provide a "drawing of the works ... by which you might take [West Point] without loss".
General Clinton and Major André, who returned victorious from the Siege of Charleston on 18 June were immediately caught up in this news. Clinton, concerned that Washington's army and the French fleet would join in Rhode Island, again fixed on West Point as a strategic point to capture. André, who had spies and informers keeping track of Arnold, verified his movements. Excited by the prospects, Clinton informed his superiors of his intelligence coups, but failed to respond to Arnold's 7 July letter.
Arnold next wrote a series of letters to Clinton, even before he might have expected a response to the 7 July letter. In a letter of 11 July, he complained that the British did not appear to trust him, and threatened to break off negotiations unless progress was made. On 12 July he wrote again, making explicit the offer to surrender West Point, although his price (in addition to indemnification for his losses) rose to £20,000, with a £1,000 down payment to be delivered with the response. These letters were delivered not by Stansbury but by Samuel Wallis, another Philadelphia businessman who spied for the British.
On 3 August 1780, Arnold obtained command of West Point. On 15 August he received a coded letter from André with Clinton's final offer: £20,000, and no indemnification for his losses. Due to difficulties in getting the messages across the lines, neither side knew for some days that the other was in agreement to that offer. Arnold's letters continued to detail Washington's troop movements and provide information about French reinforcements that were being organized. On 25 August Peggy finally delivered to him Clinton's agreement to the terms.
Washington, in assigning Arnold to the command at West Point, also gave him authority over the entire American-controlled Hudson River, from Albany down to the British lines outside New York City. While en route to West Point, Arnold renewed an acquaintance with Joshua Hett Smith, someone Arnold knew had done spy work for both sides, and who owned a house near the western bank of the Hudson just south of West Point.
Once he established himself at West Point, Arnold began systematically weakening its defenses and military strength. Needed repairs on the chain across the Hudson were never ordered. Troops were liberally distributed within Arnold's command area (but only minimally at West Point itself), or furnished to Washington on request. He also peppered Washington with complaints about the lack of supplies, writing, "Everything is wanting". At the same time, he tried to drain West Point's supplies, so that a siege would be more likely to succeed. His subordinates, some of whom were long-time associates, grumbled about unnecessary distribution of supplies, and eventually concluded that Arnold was selling some of the supplies on the black market for personal gain.
On August 30, Arnold sent a letter accepting Clinton's terms and proposing a meeting to André through yet another intermediary: William Heron, a member of the Connecticut Assembly he thought he could trust. Heron, in a comic twist, went into New York unaware of the significance of the letter, and offered his own services to the British as a spy. He then took the letter back to Connecticut, where, suspicious of Arnold's actions, he delivered it to the head of the Connecticut militia. General Parsons, seeing a letter written as a coded business discussion, laid it aside. Four days later, Arnold sent a ciphered letter with similar content into New York through the services of a prisoner-of-war's wife. Eventually, a meeting was set for 11 September near Dobb's Ferry. This meeting was thwarted when British gunboats in the river, not having been informed of his impending arrival, fired on his boat.
Arnold and André finally met on 21 September at Joshua Hett Smith's house. On the morning of 22 September James Livingston, the colonel in charge of the outpost at Verplanck's Point, fired on HMS "Vulture", the ship that was intended to carry André back to New York. This action damaged the ship and she had to retreat downriver, forcing André to return to New York overland. Arnold wrote out passes for André so that he would be able to pass through the lines, and also gave him plans for West Point. On Saturday, 23 September André was captured, near Tarrytown, by three Westchester patriots named John Paulding, Isaac Van Wart and David Williams; the papers exposing the plot to capture West Point were found and sent to Washington, and Arnold's treachery came to light after Washington examined them. Meanwhile, André convinced the unsuspecting commanding officer to whom he was delivered, Colonel John Jameson, to send him back to Arnold at West Point. However, Major Benjamin Tallmadge, a member of Washington's secret service, insisted Jameson order the prisoner intercepted and brought back. Jameson reluctantly recalled the lieutenant delivering André into Arnold's custody, but then sent the same lieutenant as a messenger to notify Arnold of André's arrest.