On April 5, 2006, Rae applied for membership in the Liberal Party of Canada.
His candidacy for the federal party leadership was supported by Greg Sorbara and George Smitherman, former Chrétien aides Eddie Goldenberg and Rae's brother John, as well as former top Martin advisor John Webster and others associated with the Martin camp.
He announced his candidacy on April 24, 2006.
At his campaign launch he responded to his critics by saying, "I made mistakes before I was in politics, I made mistakes when I was in politics, I made mistakes as premier ... I can only tell you I have learned from those mistakes and I am the wiser for them."
Rae's predecessor as premier, David Peterson who was supporting Michael Ignatieff, criticized Rae's entry into the race due to his record as NDP provincial premier, though insisting that he did not hold a personal grudge against Rae.

On May 12, 2006, Trudeau-era Deputy Prime Minister Allan MacEachen backed Rae's leadership bid becoming honorary campaign chair.
On June 16, former Ontario Liberal Party leader and provincial treasurer Robert Nixon, who sat as leader of the opposition to Rae's Ontario government for a time, endorsed Rae.
He was also endorsed by MPs Irwin Cotler, Ujjal Dosanjh, Lawrence MacAulay, Diane Marleau and Brian Murphy, as well as several Senators.
Rival candidate Maurizio Bevilacqua withdrew from the contest on August 14 to endorse Rae, and Carolyn Bennett did the same on September 15, followed by Hedy Fry on September 25 and John Godfrey on October 20.

On the night of December 1 at the Convention, Rae spoke freely without notes rather than make a formal speech.
Rival candidate Joe Volpe announced his support for Rae after the speeches were concluded.
On the morning of December 2, after finishing second on the first ballot, rival candidate Scott Brison, moved to Rae and yet another rival candidate, Ken Dryden, moved to him after the second ballot.
 However, Rae lost his bid for the leadership in the third round of Convention balloting, placing third behind both Michael Ignatieff and Stéphane Dion, who had leapfrogged into first after receiving the support of Gerard Kennedy.
 Rae then freed his delegates and did not indicate whom he supported on the final ballot; Dion won the leadership.

Despite the loss of the Liberal leadership, Rae had indicated that he would like to run for a federal seat in the House of Commons in the next federal election.
On March 7, 2007, Rae announced that he would seek the Liberal nomination in Toronto Centre.
On March 26, 2007, he won the party's nomination, defeating Toronto lawyer and human rights advocate Meredith Cartwright with 532 votes to her 267.

Several days following his defeat at the leadership convention it was reported that Rae's wife, Arlene Perly Rae was approached by a delegate who did not know who she was, and who told her that she should not vote for Rae because his wife is Jewish.
A flyer was also sent electronically to convention delegates, stating that Rae's wife was a vice-president of the Canadian Jewish Congress and that he was a supporter of Israeli apartheid.
The Canadian Press reported that the flyer was produced by Ron Saba, the editor of a small Montreal journal.
 Newly elected Liberal leader Stéphane Dion issued a press release condemning the "hateful comments" made against Rae and his wife, saying that they are "reprehensible and will not be tolerated within the Liberal Party of Canada", adding that "there is no room for abhorrent comments such as these within our Party".

Rae was named co-chair of the Liberals' platform development committee, with Scott Brison.
On April 5, 2006, Rae applied for membership in the Liberal Party of Canada. His candidacy for the federal party leadership was supported by Greg Sorbara and George Smitherman, former Chrétien aides Eddie Goldenberg and Rae's brother John, as well as former top Martin advisor John Webster and others associated with the Martin camp. He announced his candidacy on April 24, 2006. At his campaign launch he responded to his critics by saying, "I made mistakes before I was in politics, I made mistakes when I was in politics, I made mistakes as premier ... I can only tell you I have learned from those mistakes and I am the wiser for them." Rae's predecessor as premier, David Peterson who was supporting Michael Ignatieff, criticized Rae's entry into the race due to his record as NDP provincial premier, though insisting that he did not hold a personal grudge against Rae.
On May 12, 2006, Trudeau-era Deputy Prime Minister Allan MacEachen backed Rae's leadership bid becoming honorary campaign chair. On June 16, former Ontario Liberal Party leader and provincial treasurer Robert Nixon, who sat as leader of the opposition to Rae's Ontario government for a time, endorsed Rae. He was also endorsed by MPs Irwin Cotler, Ujjal Dosanjh, Lawrence MacAulay, Diane Marleau and Brian Murphy, as well as several Senators. Rival candidate Maurizio Bevilacqua withdrew from the contest on August 14 to endorse Rae, and Carolyn Bennett did the same on September 15, followed by Hedy Fry on September 25 and John Godfrey on October 20.
On the night of December 1 at the Convention, Rae spoke freely without notes rather than make a formal speech. Rival candidate Joe Volpe announced his support for Rae after the speeches were concluded. On the morning of December 2, after finishing second on the first ballot, rival candidate Scott Brison, moved to Rae and yet another rival candidate, Ken Dryden, moved to him after the second ballot.  However, Rae lost his bid for the leadership in the third round of Convention balloting, placing third behind both Michael Ignatieff and Stéphane Dion, who had leapfrogged into first after receiving the support of Gerard Kennedy.  Rae then freed his delegates and did not indicate whom he supported on the final ballot; Dion won the leadership.
Despite the loss of the Liberal leadership, Rae had indicated that he would like to run for a federal seat in the House of Commons in the next federal election. On March 7, 2007, Rae announced that he would seek the Liberal nomination in Toronto Centre. On March 26, 2007, he won the party's nomination, defeating Toronto lawyer and human rights advocate Meredith Cartwright with 532 votes to her 267.
Several days following his defeat at the leadership convention it was reported that Rae's wife, Arlene Perly Rae was approached by a delegate who did not know who she was, and who told her that she should not vote for Rae because his wife is Jewish. A flyer was also sent electronically to convention delegates, stating that Rae's wife was a vice-president of the Canadian Jewish Congress and that he was a supporter of Israeli apartheid. The Canadian Press reported that the flyer was produced by Ron Saba, the editor of a small Montreal journal.  Newly elected Liberal leader Stéphane Dion issued a press release condemning the "hateful comments" made against Rae and his wife, saying that they are "reprehensible and will not be tolerated within the Liberal Party of Canada", adding that "there is no room for abhorrent comments such as these within our Party".
Rae was named co-chair of the Liberals' platform development committee, with Scott Brison.
Bob Rae