Following the German Revolution, Gradnauer initially served as Minister of Justice in the new republican government of Saxony in 1918, and soon succeeded Richard Lipinski as Minister of the Interior and chair of the provisional government. The SPD won a plurality of the votes in the first Saxon elections under the Weimar Republic, on February 2, 1919, and Gradnauer ended up forming a minority government, becoming Saxony's first constitutional Minister-President on March 14. His minority government was formed after an attempt to form a coalition with the Independent SPD (USPD) foundered over the USPD's demand for recognition of workers' councils, and Gradnauer's preferred alternative, a coalition with the German Democratic Party (DDP), was rejected by the majority of SPD delegates.
Gradnauer served as Minister-President for a little over a year. In May 1919, he used the military and Freikorps to put down left-wing radicals in Leipzig, in a small-scale reprise of the actions taken by the SPD national government under Friedrich Ebert in putting down the Spartacist uprising some months prior. This furthered the rift with the USPD, but enabled an SPD–DDP coalition in October 1919, with Gradnauer continuing as Minister-President at the head of the now-majority government. Left-wing resentment within the SPD began to build in early 1920, however, and Gradnauer was forced to resign in April 1920, with opposition to his use of the military against the radical left being joined by discontent over his unwillingness to replace conservative elements of the bureaucracy with Social Democrats. He was succeeded as Minister-President by Wilhelm Buck.
After resigning as Minister-President, Gradnauer was reelected to the Reichstag, serving from 1920 to 1924, and briefly (1921) holding a cabinet post as Minister of the Interior under Joseph Wirth. He also served as delegate of the Saxon government to Berlin from 1921 to 1932.