In January 1777, William Washington was promoted to Major in the newly formed 4th Continental Light Dragoons, ranking behind Colonel Stephen Moylan and Lieutenant Colonel Anthony White. Although Weedon recommended William for an immediate lieutenant colonelcy, General Washington considered that, although merited, such quick rank might "(considering the connexion between us), be looked upon as the effect of partiality."
In 1777-1778, the 4th Dragoons served in the Brandywine, Germantown and Monmouth campaigns. After Baylor's 3rd Dragoons were decimated at Tappan in November 1778, General George Washington ordered Major William Washington to "contingently take command" of them. Congress then promoted William to lieutenant colonel of the 3rd Dragoons and told him to take full command of the regiment. In late 1779 the rebuilt 3rd was ordered to South Carolina. The 1st Dragoons had already been at Savannah in 1779 with Brig. General Casimir Pulaski and suffered when his assault failed. The 4th Dragoons would not serve in the Carolinas until 1782.
When Washington arrived in South Carolina, he camped near Charles Elliott's Sandy Hill plantation a few miles west of Charleston. When the owner's daughter, Jane Riley Elliott, met William, she told him "that she would look out for news of his flag and fortune." The cavalryman lamented the lack of a standard for his regiment, and the quick-thinking seventeen-year-old cut an 18-inch square of crimson damask from a drapery. She then fashioned a sleeve to fit a lance pennon and bound the edges for a fringe. To the flattered Virginian, she then exclaimed, "Here is your flag, colonel! Take this, Colonel, and make it your standard." William attached the banner to a hickory pole and the 3rd Dragoons would carry it through the war's end. Later on, the flag would be called "Tarleton's Terror" after the Battle of Cowpens and then the "Eutaw flag" for the Battle of Eutaw Springs.
Washington and Lt. Colonel Banastre Tarleton frequently faced each other in cavalry skirmishes and full-fledged battles. Throughout March 1780 and into early April, the American cavalry continued thrust and parry operations against the British while maintaining a thin communications line into Charleston. On March 27, William encountered Tarleton for the first time near Sandy Hill at Rantowle's, which was a few miles northeast of a bridge spanning a tributary of the Stono River. He first defeated Tory Colonel John Hamilton's North Carolina infantry. When Tarleton arrived and attempted to rescue Tory prisoners, Washington charged him in turn and drove the Green Dragoons back. Only a lack of infantry support prevented William from exploiting his temporary advantage. He also almost captured Lt. General Henry Clinton, who had joined Tarleton's force.