Townshend was created Baron Sydney of Chislehurst and entered the House of Lords on 6 March 1783. He originally proposed his title to be Baron Sidney, in honour of his kinsman, the renowned opponent of royal tyranny, Algernon Sidney, however he was worried that other members of his family might have claims on it and then suggested Sydenham, the name of a village near his home in Kent, before settling on Sydney. He opposed the Fox-North coalition and returned to political office with Pitt, serving as Home Secretary from 1783 to 1789.