Karrabee was kept in service after the 1932 opening of the
Sydney Harbour Bridge whereas 18 mainly older vessels were decommissioned due to the drop in passenger demand. Prior to the bridge opening, Sydney Ferries Limited had transported 40 million passengers a year, however, this number dropped to 15 million after the opening. The drop in demand for the remaining ferry fleet, was somewhat mitigated as many could not afford their own transport in the
Great Depression of the 1930s and rationing of fuel during World War 2 made the coal required for the steam ferries relatively cheap. In 1936,
Karrabee was converted from steam to diesel-electric power. The new six-cylinder
Henty and Gardner diesel engines generated 440 bhp and gave her a speed of nine knots. In 1951, as post-war demand for ferry services dropped further to 9 million, the NSW State Government took over Sydney Ferries Limited and its remaining fleet and assets. The
Port Jackson and Manly Steamship Company, which ran the Manly service, was paid to run the services. The services and fleet were quickly rationalised with most of the larger remaining timber K-class steamers being decommissioned. In the 1950s,
Karrabee was painted red, white and blue and used as a floating promotion for Armed Forces recruitment. For most of her service life,
Karrabee had only a few minor incidents. She collided with
Kameruka in 1951 and with the smaller
Radar in 1979. In 1975, she failed to stop at Circular Quay and rammed the concrete seawall. File:Sydney ferries WOOLLAHRA KARRABEE KURRABA and liner NALDERA at Bennelong Point 1920s.jpg|In the 1920s leaving Circular Quay File:Sydney ferry KARRABEE at Circular Quay.jpg|At Circular Quay circa 1930 File:Sydney ferry KARRABEE 1940s.jpg|
Karrabee with armed forces recruitment advertising. File:Sydney ferries KARRABEE and KARINGAL in Sydney Cove.jpg|
Karrabee (front) and sister
Karingal as diesel vessels. The larger
Karrabee had 13 windows along the top deck, in comparison to 11 on
Karingal 1984 Great Ferry Boat Race ''Karrabee's'' career as a ferry came to an end with her sinking at
Circular Quay in 1984, an incident which received extensive news media coverage. Having just returned to service from an overhaul at the
Urban Transit Authority's Balmain yard, on 22 January, the
Karrabee took part in the annual Great Ferry Boat Race. With passengers crammed forward pushing her bow down, and the harbour chopping with the wash of pleasure craft following the race, the vessel took on water through a number of places. She finished a distant third (she came first in the inaugural event in 1980). The amount of water pouring into the vessel went unnoticed for some time, however, when Captain Archer realised what was happening, he took the ferry back early to
Circular Quay. With her nose dipping below the water, passengers were quickly disembarked at Wharf 4, and the ferry sank as the last of the passengers alighted onto the wharf. She was raised two days later by the
floating crane Titan. She was towed out of Circular Quay and laid up while investigations into the sinking took place. Ultimately the cause of the sinking was found to be a buildup of rubbish around the bilge pump inlet that restricted the ability of the pumps to clear the water. ==Retirement and demise==