He later moved into management, and after 15 years as manager of Airdrieonians, he became the sixth manager in the history of Manchester United on 1 November 1921 after Jack Robson stepped down due to ill health. His first season in charge finished with United bottom of the league and relegated to the Second Division; however, Chapman guided them to second place to win promotion back to the top flight three years later.
On 7 October 1926, The Football Association announced that Chapman had been suspended from "taking part in football or football management" during the 1926–27 season "for improper conduct in his position as Secretary-Manager of the Manchester United Football Club". No further explanation for the suspension was ever given. By the next match, two days later against Bolton Wanderers, Lal Hilditch had taken over on a temporary basis as player-manager.
Following the end of his suspension, Chapman unsuccessfully applied to become manager of Leeds United and turned down two football management offers before taking up a position as the general manager of the Liverpool Greyhound Racing Club in August 1927.