Watson had been chosen as the party's inaugural leader in 1901, and led Labor to the 1903 and 1906 federal elections. He announced his intention to resign the leadership on 24 October 1907, which was attributed to his "physical and mental fatigue, together with his wife's ill health and her objections to his frequent absences from home". Financial considerations may have also played a part. There was little appetite within the party for a change in leadership, and some of his colleagues tried to convince him to stay on as leader.
The Labor caucus met at Parliament House, Melbourne, on 30 October to elect a new leader. Four candidates were nominated – Andrew Fisher, Billy Hughes, William Spence, and Lee Batchelor. All except Spence had served in cabinet during the 1904 Watson Ministry, the Labor Party's only previous experience in government. Batchelor withdrew before the first ballot, which saw Spence eliminated. Fisher then won a majority on the second ballot. Hughes proposed that a third ballot be held so that Fisher could be elected unopposed. This result was what was reported to the press, and the fact that there had been other candidates was not revealed until a number of years later.