Jock Wallace began his first full season in charge with a winless run stretching eight games at the start of the season, and only two league wins were registered before the turn of the decade. Assistant manager
Alan Ball left the club to join
Stoke City and ahead of Christmas, Wallace stepped aside due to ill health and the onset of
Parkinson's disease.
Steve Foley was once again placed in temporary charge of the U's first team but declined the offer of the role full-time instead preferring his youth team duties. Chairman Jonathan Crisp brought in former
Ipswich Town and
England defender Mick Mills as the new
manager having recently been dismissed by Stoke City. Mills' appointment initially had a positive effect on the team, and they won three and drew one of four league games in late February and early March, but a defeat at nearest rivals
Wrexham in late March, after twice leading before succumbing to a 3–2 defeat, summed up the remainder of the season. Despite having enough time to potentially improve their situation, six defeats in the final eight games of the season left Colchester bottom of the
Fourth Division and so
relegated to the
Conference. By now, the club was over £1m in debt, and plans for a new stadium at Wick Lane,
Ardleigh had also been refused. Jonathan Crisp's initial hope of achieving
Second Division football within five years of his appointment in 1985 now seemed very distant with the club out of the
Football League for the first time in 40 years. ==Players==