Towards the end of his tenure as mayor, Schundler served as chairman of the Hudson County Republican Committee, and in 2001, Schundler won the Republican gubernatorial nomination, facing former Congressman Bob Franks, a considerably more moderate Republican who was favored by the party establishment. Franks entered the race in April, two months before the primary, after Gov. Donald DiFrancesco dropped out of the race because of an unending series of newspaper stories highlighting ethics concerns. He was backed by Gov. DiFrancesco's political organization and endorsed by every county Republican committee except Schundler's base in Hudson County.
Schundler employed a more grassroots style of campaigning, visiting many local GOP organizations and forming close relationships with the Young Republicans and the College Republicans, as well as with conservative groups, including those active in homeschooling issues. The grassroots support he built up enabled him to win the nomination by a robust 15-point margin.
After winning the primary, Schundler tried to reunite the party by reaching out to the figures who had endorsed Franks. This included having a unity lunch with Franks which was hosted by former Gov. Tom Kean, and retaining New Jersey State Senator Joseph M. Kyrillos as state party chairman. Kyrillos had been appointed by DiFrancesco as state party chairman six weeks before the primary, and he had supported Franks in the primary. However, the party remained split. Jim McGreevey, the Democratic candidate, exploited this division by painting Schundler as too conservative for New Jersey.