He was released on parole from Ballykinlar in March of 1921 – the British apparently being unaware of his senior position within the Dublin Brigade of the IRA. After his release, Daly, along with Emmet Dalton, was also involved in the attempt to free Sean Mac Eoin from Mountjoy Prison on 14 May 1921. He and his men hijacked a British Army Peerless armoured car in Clontarf at the corporation abattoir, while it was escorting a consignment of meat to a barracks and shot dead two soldiers in the process. The plan involved Dalton and Joe Leonard impersonating two British army officers (wearing Dalton's uniforms from his days as a soldier during World War I) and using forged documents to "transfer" MacEoin to Dublin Castle. They gained entry to Mountjoy, but were discovered before they could free MacEoin and had to shoot their way out. They later abandoned the armoured car after removing the Hotchkiss machine guns and setting fire to what they could. Towards the end of the war, in May 1921, the two principal fighting units of the IRA's Dublin Brigade, the "Squad" and the "Active Service Unit" were amalgamated after losses suffered in the Burning of the Custom House. Daly was put in command of this new unit, which was named the Dublin Guard.