After returning to Hawaii, he served as Deputy Attorney General under Attorneys General
Antone Rosa and
Clarence W. Ashford for two years and retired in March 1890, to return to private law practice. In April 1890, he was appointed Notary Public for the First Judicial Circuit of the Kingdom. In June 1890, King
Kalakaua appointed him
Attorney General of Hawaii as a part of the
Cummins Cabinet, a position he held from June 17, 1890, to February 25, 1891. In January 1891, Kalākaua died while abroad in
California and his sister ascended to the throne as Queen
Liliuokalani. After the accession of the new sovereign, it was customary for the hold-over cabinet of the deceased monarch to resign, but the Cummins Cabinet refused the queen's request for them to resign citing the
1887 Constitution which only gave the
legislature the power to the dismiss cabinet ministers. They asked for a ruling by the
Hawaii Supreme Court, and the justices (except for one dissenting opinion) ruled in favor of the queen's decision, and the ministers resigned. In 1892, he was elected as a member of the House of Nobles for the island of
Oahu as a member of the
National Reform Party. During the 1892–1893 legislative assembly, Peterson lost the respect of the
haole (foreign) community when he became the only white legislator to vote for the lottery bill. On January 13, 1893, Queen Liliuokalani re-appointed him as Attorney General to the final Parker Cabinet with
Samuel Parker,
William H. Cornwell, and
John F. Colburn after her previous cabinet was voted out by the legislature. She attempted to promulgate a
new constitution, but Peterson and the rest of the cabinet were either opposed to or reluctant to sign the new constitution. Their opposition was one of the causes which ultimately led to her
overthrow by the
Committee of Safety. After the overthrow, Peterson and the rest of the Parker Cabinet were removed from office. ==Imprisonment, exile and death==