He supported economic development of the colony through free trade and was elected to the South Australian Legislative Council again in 1860, where he advocated uniform tariffs for Australia. He was chief secretary in the First Reynolds Ministry from May 1860 to February 1861. After Reynolds ended his term as Premier in 1861, Waterhouse formed a government with the intention of finalising a motion in relation to Justice Benjamin Boothby, a judge in the Supreme Court of South Australia who was causing difficulties by objecting to the legitimacy of the Appeals Court under the new Constitution. Waterhouse resigned his ministry after this task was completed, but was persuaded to reform another government, which lasted until July 1863 before collapsing in the face of accusations of financial irregularities and alleged misappropriation of funds. In 1864 he retired from South Australian politics and spent some time in England.