In May 1925, Callaghan was assigned to USS Colorado , later transferring to USS Mississippi. After these tours, he returned to the Pacific Coast Section of the Board of Inspection and Survey. In June 1930, he became aide first to Commander, Battleships Battle Force, Commander Battle Force then to Commander in Chief, US Fleet, where he was promoted to commander in June 1931. For his next tour, Callaghan was executive officer of the NROTC Unit at the University of California, Berkley, California. He then completed a brief tour in USS Portland before reporting as the operations officer to Commander, Cruisers Scouting Force. In July 1938, he received orders as naval aide to President Franklin D. Roosevelt and was promoted to captain that October.
In May 1941, Callaghan assumed command of USS San Francisco. After the United States’ entry into World War II, he was promoted to rear admiral in April 1942 and became Chief of Staff to Commander, South Pacific Force. On 12–13 November, while serving as Commander of Task Force 67.4 in his flagship San Francisco, Rear Admiral Callaghan was killed in action at the Naval Battle of Guadalcanal on 13 November 1942. He was posthumously awarded the Medal of Honor with the following citation:
“For extraordinary heroism and conspicuous intrepidity above and beyond the call of duty during action against enemy Japanese forces off Savo Island on the night of 12–13 November 1942. Although out-balanced in strength and numbers by a desperate and determined enemy, Rear Admiral Callaghan, with ingenious tactical skill and superb coordination of the units under his command, led his forces into battle against tremendous odds, thereby contributing decisively to the rout of a powerful invasion fleet and to the consequent frustration of a formidable Japanese offensive. While faithfully directing close-range operations in the face of furious bombardment by the superior enemy fire power, he was killed on the bridge of his Flagship. His courageous initiative, inspiring leadership, and judicious foresight in a crisis of grave responsibility were in keeping with the finest traditions of the United States Naval Service. He gallantly gave his life in the defense of his country.”
Two USS Callaghans, DD 792 (1943–1945) and DDG 994 (1981–1998) were named in his honor.