He was created a baronet in 1840, and four months before his death was nominated to the governorship of Bombay. As a political agent at Kabul he came into conflict with the military authorities and subsequently with his subordinate Sir Alexander Burnes. Macnaghten attempted to placate the Afghan chiefs with heavy subsidies, but when the drain on the Indian exchequer became too great, and the allowances were reduced, this policy led to an outbreak. Burnes was murdered on 2 November 1841; and under the elderly General William Elphinstone, the British army in Kabul degenerated into a leaderless mob.
Macnaghten tried to save the situation by negotiating with the Afghan chiefs and, independently of them, with Dost Mohammad's son, Akbar Khan, by whom he was captured and, on 23 December 1841, assassinated by Khan placing a pistol in Macnaghten's mouth. This very soon became an inspirational story among the Afghans, with the disastrous retreat from Kabul and the Massacre of Elphinstone's army in the Kurd Kabul Pass following. These events threw doubt on Macnaghten's capacity for dealing with the problems of Indian diplomacy, though his fearlessness and integrity were unquestioned.