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Donaldson joined the Ulster Unionist Party and served as agent for Enoch Powell, MP. In 1985 he was elected in a by-election to the Northern Ireland Assembly sitting at the time. Later in 1997 he was elected as MP for the Lagan Valley constituency and was widely seen as a potential future leader of the Ulster Unionist Party.

In 1998 Donaldson was part of the Ulster Unionist's negotiating team for the Good Friday Agreement, however he walked out of the delegation at the end of the negotiations in protest at some of the arrangements. Subsequently he was excluded from standing in 1998 for the new Northern Ireland Assembly. Donaldson became the leading anti-agreement figure in the Ulster Unionists and led several challenges to the party leader, David Trimble, all of which failed.

In mid 2003 Donaldson, along with fellow MPs David Burnside and Martin SmythReverend Martin Smyth (born June 15, 1931) is a Northern Ireland unionist politician, and Member of Parliament for South Belfast. He is a member of the Ulster Unionist Party He used to be Grand Master of the Orange Order, and has been MP for the seat sinc resigned the Ulster Unionist whip at Westminster in protest over Trimble's policies. However they remained members of the wider UUP and in November 2003 Donaldson was elected to the Northern Ireland Assembly despite being in strong disagreement with the official position of the party. Following the electoral success of the rival Democratic Unionist PartyThe Democratic Unionist Party is a hardline Unionist party in Northern Ireland led by Ian Paisley. It is the largest unionist party at both the Northern Ireland Assembly level and in the Westminster Parliament. Established in the 1970s by Ian Paisley, it in the Northern Ireland Assembly Election, 2003The second elections to the Northern Ireland Assembly, which at the time of the elections had been suspended for just over a year, were held on 26 November, 2003. Six members were elected by Single Transferable Vote from each of Northern Ireland's eightee, in which the DUP won more seats than the UUP, Donaldson called for Trimble's immediate resignation. When the party failed to move against Trimble and instead backed him, on 18 December 2003 Donaldson and two other Ulster Unionist Assembly members announced that they were resigning from the party. On January 5 2004 they announced they were joining the Democratic Unionist Party.