The 1979/80 season had barely begun when United faced yet another top flight club. Beating Watford over two legs in the League Cup, the U's were drawn at home to Aston Villa, rekindling memories of the Quarter Final tie five years previously. A 2-0 defeat in front of just 6,221 meant to many that the tie was over, but remarkably United went to Villa Park and won 2-0 to take the game to extra time and then penalties. So successful were all the takers that it was necessary for the goalkeepers to take their turn. U's stalwart Mike Walker missed his and Colchester bowed out 9-8.
The U's were in fine form in the League from then on going ten games undefeated and positioning themselves level on points with Sheffield United at the top.
Chairman Maurice Cadman announced that Layer Road needed £280,000 (over £1.5m in today's terms) of basic improvements just to meet the then safety legislation. Despite some grants being available the figure was unattainable. The club could not relocate because a series of covenants was placed on the ground when it was purchased from the Council in 1971. One of those was that the club could not sell the land for housing. Plans were drawn up to virtually lose the Open End by moving the pitch to create a 5,000 capacity terrace behind the Layer Road goal whilst building a new main stand on the Popular side of the ground with executive boxes. The capacity would increase to an 'adequate' 18,000.
Tracking the leaders for most of the season, with ten away wins to boot, United succumbed to successive defeats to Blackpool, Blackburn and Reading as February turned into March 1980 and, with injuries to Steve Foley and Bobby Gough, the goalscoring was left to Trevor Lee who returned 18 League and Cup strikes.
Colchester had occupied a top four slot for virtually all of the season but had to be content with fifth place and six points short of the promotion places. It was the closest that the club had come to the dream of Second Division football since the 1956–57 season but the Colchester public had not responded. The average gate of 3,818 was the third lowest in the division ahead of Wimbledon and Chester.