In 1848 Hendricks, running as a Democrat, won a seat in Indiana's state assembly; subsequently becoming chair of the banking committee. In 1850 he was selected as a delegate to the state constitutional committee, where he argued successfully for a ban on black migration to the state. The next year he was elected to Congress and reelected in 1852 under the new state constitution. A supporter of the Kansas-Nebraska Act and Stephen Douglas, Hendricks was defeated for reelection in 1854 by a fusion candidate. He served as a land office commissioner from 1855 to 1859. In 1860, he lost his bid to become Indiana's governor to Republican Henry Lane. In 1863, however, the Democratically-controlled state legislature elected Hendricks to the U. S. Senate. He quickly became a leader of the Democratic opposition to the Lincoln administration's policies on the draft, emancipation (including the 13th Amendment), taxation, and the issuance of paper money ("greenbacks").

After the war, Hendricks endorsed President Andrew Johnson's lenient plan for Reconstruction and opposed the Freedmen's Bureau Bill, Civil Rights bill, the 14th and 15th Amendments, and Johnson's impeachment. In 1868 he was one of several contenders for the Democratic presidential nomination, but was defeated by Horatio Seymour. Hendricks was nominated in the same year for governor of Indiana, losing by a whisker-thin margin of 961 votes to Conrad Baker. For the next several years Hendricks practiced law in Indianapolis, but in 1872 his third nomination for the governorship was the charm. As the nation's first Northern Democrat elected governor in the post-Civil War years, he accrued ample political prominence within his party. When Democratic presidential nominee Horace Greeley died shortly after the November 1872 election, 42 of his 62 electoral college votes were later cast for Hendricks.