In March 1791, at Hamilton's urging, with support from Madison, Congress imposed an excise tax on distilled spirits to help curtail the national debt, which took effect in July. Grain farmers strongly protested in Pennsylvania's frontier districts; they argued that they were unrepresented and were shouldering too much of the debt, comparing their situation to excessive British taxation before the Revolutionary War. On August 2, Washington assembled his cabinet to discuss how to deal with the situation. Unlike Washington, who had reservations about using force, Hamilton had long waited for such a situation and was eager to suppress the rebellion by using federal authority and force. Not wanting to involve the federal government if possible, Washington called on Pennsylvania state officials to take the initiative, but they declined to take military action. On August 7, Washington issued his first proclamation for calling up state militias. After appealing for peace, he reminded the protestors that, unlike the rule of the British crown, the Federal law was issued by state-elected representatives.

Threats and violence against tax collectors, however, escalated into defiance against federal authority in 1794 and gave rise to the Whiskey Rebellion. Washington issued a final proclamation on September 25, threatening the use of military force to no avail. The federal army was not up to the task, so Washington invoked the Militia Act of 1792 to summon state militias. Governors sent troops, initially commanded by Washington, who gave the command to Light-Horse Harry Lee to lead them into the rebellious districts. They took 150 prisoners, and the remaining rebels dispersed without further fighting. Two of the prisoners were condemned to death, but Washington exercised his Constitutional authority for the first time and pardoned them.

Washington's forceful action demonstrated that the new government could protect itself and its tax collectors. This represented the first use of federal military force against the states and citizens, and remains the only time an incumbent president has commanded troops in the field. Washington justified his action against "certain self-created societies", which he regarded as "subversive organizations" that threatened the national union. He did not dispute their right to protest, but he insisted that their dissent must not violate federal law. Congress agreed and extended their congratulations to him; only Madison and Jefferson expressed indifference.