Connolly was appointed manager of Dumfries club Queen of the South in July 2000 and he appointed Iain Scott as his assistant. With the club's captain Jim Thomson and his fellow centre-back Andy Aitken, Connolly led the club to the Scottish Second Division Championship in the 2001–02 season, as they clinched the title at Station Park, Forfar with a 3–0 win versus the "Loons". Connolly was the first "Doonhamers" manager to win a title since Jimmy McKinnell, Jr. won the Second Division in the 1950–51 season.