3SQN was reformed at Point Cook on the 1 July 1925, moving to Richmond on the 2 July 1925. During April 1926 all RAAF aircraft were modified to take parachutes. During the period 1926 to 1929 the Squadron won the Air Services Trophy and the NSW Aerial Derby, the latter being won four times, the last being in September 1935. In 1935 the SQN won the Stonehaven Cup for the third straight year, this is awarded for efficiency and presentation. 1939 brought the start of another World War and in February 1940 3SQN began preparations for a move to the Middle East, the first Australian Squadron sent overseas.
3SQN left Sydney on the 15 July 1940 and began operations in August of that year, at first flying Lysanders, then Gladiators and gauntlets. In 1941 the unit received Hawker Hurricanes and the first SQN kill was achieved by one of these aircraft, a German JU88. During April/May the SQN converted to the P-40 and the SQN’s kill tally rose steadily. A number of German and Italian aircraft were captured and flown by 3SQN personnel, one such aircraft being an ME109G that is at the Imperial War Museum in England. The last German garrison in the Middle East surrendered on the 12 May 1943 and in typical Aussie fashion the SQN, which had anticipated the victory, made a 'grog' trip to Algiers so the boys could celebrate.
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By 23 July 1943 the Squadron had arrived at Panchino Sicily and commenced operations the next day. By August the last resistance ended. The invasion of Italy commenced on the 3 September 1943 and on the 14 September 1943 3SQN moved to Grottaglie airfield in Italy, the first Allied Squadron to occupy an enemies homeland. The SQN moved to Crete in July 1944 with the last operations using the P-40 Kittyhawks being conducted on the 20 November 1944, thereafter all operations were conducted using the P-51 Mustang. Whilst in Italy the now well known Southern Cross began to appear on tails of 3SQN aircraft. With the end of the war 3SQN had flown 25,663 flying hours, dropped over 8.5 million pounds of bombs and claimed 217.5 enemy aircraft shot down in combat, making 3SQN the highest scoring Desert Air Force SQN and the highest scoring of all Commonwealth SQN’s during WW2.