In 1861, Steele was stationed at Fort Leavenworth. He was sent east to command a battalion at Wilson's Creek. Steele was appointed colonel of the 8th Iowa Infantry in September 1861, only to be promoted to brigadier general in January 1862. He commanded forces in Arkansas in 1862. In March 1863, Steele received a promotion to major general. He commanded a division of Sherman's army during the Battle of Chickasaw Bluffs, the Battle of Arkansas Post, and the Vicksburg campaign. In September 1863, Steele captured Little Rock. In the following spring, he led forces in the Red River campaign. In 1865, Steele commanded a division in the campaign against Mobile and mustered out in 1867.
