Peres led the Labor party in their unsuccessful bid to unseat Menahem Begin in 1981. Peres's chances were hurt by the IAF strike on the Iraqi nuclear reactor, and by racist remarks made by an Israeli comedian who supports the Labor part. Beginning in 1981, Israel suffered a period of uncontrolled and disastrous inflation as well as the war in Lebanon initiated by Ariel Sharon. Following the 1984 elections, a unity government was formed, with Peres and Yitzhak Shamir serving alternately as Prime Ministers. Peres was in large part responsible for an economic plan which brought inflation down from over 700% annually to about 15% in a very brief time. Peres was also involved in the "Irangate" affair, in which Israel cooperated with Oliver North and others to exchange US hostages held by Iranian-backed Lebanese terror groups in return for US military equipment that would be sold through Israel. 

Peres tried to bring down the Shamir government in a parliamentary coup, but failed. Elections in 1988 led to a second unity government, where Peres served as Finance Minister.

In 1992 Peres lost party leadership to Yitzhak Rabin, who led the Labor party to victory in the 1992 elections. Peres was appointed foreign minister in the new Labor cabinet. Together with his assistant, Yossi Beilin, Peres was responsible for the negotiations that brought about the Oslo Accords. Peres and Rabin had reconciled their differences. In 1994 the Nobel Peace Prize was awarded to Shimon Peres, Yitzhak Rabin, and Yasser Arafat in recognition of their role in the Oslo peace process.

On November 4, 1995, Israeli Prime Minister Yitzhak Rabin was assassinated by Yigal Amir, minutes after he and Peres had stood side by side on a podium at a giant peace rally in the main square of Tel Aviv, now called Rabin square. Peres became prime minister, vowing to continue the peace negotiations and overseeing the  Oslo Interim Agreement  (Oslo II). In February 1996, Peres called for new elections, hoping that they would renew his mandate for peace. Polls showed an overwhelming majority for the Labor party in the wake of the assassination of Yitzhak Rabin. However, several bus bombings, and a suicide bombing in Dizengoff square in Tel Aviv helped quench the enthusiasm for peace and drove Jewish voters to the opposition Likud party. Arab voters were disaffected by the bloody operation Grapes of Wrath undertaken by the Peres government in Lebanon. Peres refused to campaign actively and left administration of the campaign to Haim Ramon, who relied on the polls and did little, instead of pursuing an aggressive campaign stressing the heritage of Rabin. In a debate with challenger Benjamin Netanyahu., Peres gave a lackluster performance. Peres lost the elections by a narrow margin. He subsequently founded the Peres Peace Foundation to further joint economic ventures that would foster peace.

In May 1997 Peres retired from his position as party head. Party leadership was taken over by Ehud Barak, who became Prime Minister in the elections of May 1999.  Peres was proposed for the post of President of Israel, but lost the election in the Israeli Knesset to Moshe Katsav. However, after Barak lost the elections in 2000 to Ariel Sharon, he retired from politics, and Peres again became head of the Israel Labor Party. Peres served as foreign minister in the unity government of Ariel Sharon until Labor left the government prior to the elections of 2003, and again was deputy prime-minister in the unity government of Ariel Sharon in 2005. In November of 2005 Peres was defeated in an election for Labor Party Secretary by Amir Peretz.