McPhee was a strong supporter of the temperance movement, and was supported by temperance interests when he unsuccessfully stood for election to the Tasmanian House of Assembly at the 1916 election and a subsequent 1918 by-election. He was successful at the 1919 election, and won a seat in the Division of Denison for the Nationalist Party of Australia. McPhee was appointed to cabinet as Chief Secretary and Minister for Railways from 22 August 1922, but resigned both posts a year later for business reasons. In October 1923, the Premier Walter Lee was forced to resign by dissidents from the Nationalist and Country parties, and Joseph Lyons was asked to form a Labor government by the Governor of Tasmania. McPhee supported the Lyons government in a subsequent no-confidence vote and, as Opposition Leader from 29 July 1925, was noted for his co-operative and cordial relationship with Lyons.