As part of the British Empire, Canada was obliged to aid Great Britain in World War I. The majority of Canadians, except those in Quebec, supported sending troops to the battlefront. The first Canadians were in the lines in France by early 1915, and the Canadian Corps distinguished itself throughout the war. As the fighting wore on, voluntary enlistments were not sufficient to provide manpower, and Prime Minister Borden proposed conscription. The Conscription Act of 1917 met with hostility from many groups and seriously disrupted national unity. To promote unity, Borden in late 1917 formed a national bipartisan Union government, composed of Conservatives and pro-conscription Liberals.

The war ended the following year. Nearly 700,000 Canadians had served during the war; 61,000 had lost their lives. The war accelerated the industrial development of Canada, but its most important result was the international recognition given Canada for its participation in the conflict. Borden, who wanted Canada to play a role in the peace process, won separate representation for all self-governing British dominions at the peace conference in 1919. In the early 1920's, Canada began formulating foreign policy independently of Great Britain.

In the postwar period, there was considerable expansion of industry and agriculture. Canadian railways were extended in the west and, with the exception of the Canadian Pacific, were united and nationalized as the Canadian National Railways. Urban centers expanded, and immigration reached a peak during the economic boom of the 1920's.

For most of the years between the world wars and during World War II, the prime minister was William Lyon Mackenzie King, a Liberal. (King's maternal grandfather was William Lyon Mackenzie, who had led the 1837 rebellion in Upper Canada.) At the Imperial Conference of 1926, a meeting of leaders of the self-governing nations within the British Empire, King asked for clearer definitions of imperial relationships. This request led to the Balfour Report of 1926 and eventually to the Statute of Westminster of 1931, which proclaimed that Great Britain and the self-governing dominions of the Commonwealth of Nations (the organization that superseded the British Empire) were equal in status.

Canada was severely affected by the worldwide depression of the 1930's. At the depth of the depression in 1933, about one-fifth of the workforce was unemployed. The Prairie Provinces were particularly hard hit, both by a severe drought and by the collapse of the wheat trade. Growing discontent gave rise to new political groups such as the Co-operative Common wealth Federation and the Social Credit movement. Although the depression had not ended, an economic upswing had begun when World War II broke out.