Bagnold was recalled to the army in August 1939. He was originally posted to Kenya but his troopship collided in the Mediterranean en route and put in for repair in Egypt. General Wavell requested that Bagnold remain in the Middle East and he was posted to the signals unit of General Hobart's armoured division.

With the threat of Italy entering the war and launching an attack into Egypt through the Libyan Desert, Bagnold began pressing from November 1939 for the establishment of a unit prepared to undertake reconnaissance and small-scale raids in the desert behind enemy lines. Italy declared war in June 1940 and in July General Wavell gave Bagnold permission to establish the Long Range Desert Group (LRDG) along the lines he had suggested. Initially all the LRDG were drawn from New Zealand forces, later Rhodesian and British patrols were formed. The LRDG was a great success and made a significant contribution to the Allied victory in North Africa. Bagnold was awarded the OBE (Military) in 1941.