At the end of the war in 1763, Steuben was retired from the Prussian army. He spent the next few years as Court Chamberlain to the Prince of Hohenzollern-Hechingen, gaining a knighthood and the title of Baron (Freiherr), but in 1777 he was forced to resign for reasons that are no longer clear. Whatever those reasons were, Steuben was unable to gain employment with a series of European powers. In Paris he met Benjamin Franklin and Silas Deane, busily recruiting for the American cause, and managed to convince them that he was a lieutenant-general and enthusiastic revolutionary, rather than an unemployed ex-captain. Franklin and Deane gave him a letter of introduction, and he sailed for America.
He arrived in December 1777 to find Washington and his tattered army camped at Valley Forge. Despite his limited English, Steuben impressed Washington who asked him to examine the Continental soldiers. Steuben's report encouraged Washington to appoint him acting Inspector-General, an appointment confirmed by Congress in May 1778 when he was also given the rank of Major-General.
His work at Valley Forge was to turn the ragged Continentals into a far more professional and competent army. First he selected a model company, which he trained personally, although he eventually needed a translator for his orders. The members of this company were then able to spread his methods across the army. Those methods were intelligently modified from the Prussian models to make them better suit American conditions and the character of the American volunteer soldiers. This demonstrated itself in his willingness to explain the drills and manoeuvres he was teaching, something rather less likely to happen in Prussia, and to answer questions. The training he initiated appears to have been popular amongst the men at Valley Forge. He also initiated training in bayonet drill, an area where the British had demonstrated a great superiority and in which they were soon to be surprised. Steuben insisted on a higher standard of conduct amongst the Continental officers, also a theme of Washingtons. Steuben was eventually to succeed in this, apparently partly through his particularly impressive range of oaths, all but one of them in French or German.
Although Steuben was a first class organiser of training, he was less successful in other areas. At the start of 1781 he was in Virginia helping to supply Greene's army in the Carolinas. He was also raising Continental Regiments, whose presence in Virginia probably helped to convince Cornwallis not to pursue Greene out of North Carolina in February. After much persistent nagging Washington was persuaded to give him an independent command in Virginia in the spring of 1781 where Benedict Arnold was causing great damage for the British, but Steuben did not live up to the image he had created of himself and achieved little. He was even forced to flee from a British raid when his men refused to fight. His justified fame was based on his skills of organisation not on any battlefield victories.
His crucial role in moulding the Continental Army over the winter of 1777-78 was recognised after the war. Congress awarded him a large cash grant, the state of New York gave him a large land grant, and in 1790 he was also granted an annual income of $2500. He spent the last years of his life in retirement on his land in New York state.