When the Civil War began in April 1861, Lyon was promoted to first lieutenant. However, his sympathies were with the Confederacy and he resigned from the United States Army. He raised Company F, 3rd Kentucky Infantry, which soon became part of the 1st Kentucky Artillery. Lyon equipped the unit, which initially was known as Lyon's Battery, later Cobb's Battery. In January 1862 Lyon was promoted to lieutenant colonel of the 8th Kentucky Infantry and exercised command in the absence of the colonel. Lyon's regiment was part of the garrison of Fort Donelson, Tennessee. After fighting off three attacks by the Union Army, the fort finally surrendered to Ulysses S. Grant. Lyon was sent as a prisoner of war. first to Camp Morton, at Indianapolis and then to Camp Chase, Ohio. He and other captured officers were sent taken to Fort Warren, where he was finally exchanged in September.