He also spent two years in the United States Air Force. While at IU, he met his wife, Judith (Asmus) O'Bannon, and they were married in 1958. Following law school, he served as a county seat lawyer, was chairman of the board of the family newspaper publishing firm (a position he held until the time of his death), and a member of the board of the Corydon Savings and Loan.
During the boom years of the 1990s, when Indiana amassed a record $2 billion surplus, O'Bannon was able to cut taxes by $1.5 billion, hire 500 more police officers in the state and win increased funding for schools and extended health insurance for poor families. He also signed landmark legislation creating the AMBER Alert program in Indiana, as well as legislation requiring drivers to slow or change lanes for emergency vehicles stopped along Hoosier roadways.
In 2000 he won an easy re-election bid under the theme of "Keeping Indiana Moving in the Right Direction." His campaign featured memorable advertisements with O'Bannon reprising his basketball past by shooting a perfect jump shot.
After the 9/11 disaster and subsequent market downturn, Indiana lost 120,000 jobs, tax revenues dropped, and O'Bannon had to cut social services and other services in order to spare education. In 2001 he worked with the state legislature to formulate a major restructuring of the state tax system. His opponents blamed him for various problems arising in the second term, including a slow response by his environmental agency to a big fish kill, and problems at two state centers for the developmentally disabled.
His record, however, was firmly established as an educational leader for the state. He helped lead development of Indiana's first community college system, pushed for early-childhood learning opportunities, development of alternative high schools, and charter schools. His work as chair of the state's landmark "Education Roundtable" ensured that Indiana was one of only five states whose schools immediately qualified as meeting all standards set by the federal "No Child Left Behind" act upon enactment.
O'Bannon suffered a massive stroke on September 8, 2003, while he was in Chicago, Illinois attending the U.S. Midwest-Japan trade conference. He was taken to Northwestern Memorial Hospital where he remained unconscious.
On September 10, 2003, the Speaker of the Indiana House of Representatives, B. Patrick Bauer (D-South Bend), and the State President Pro Tem, Robert D. Garton (R-Columbus), sent official notice to the Indiana Supreme Court noting that Governor O'Bannon was incapacitated and unable to fulfill the duties of his office. As such, the court approved naming Lieutenant Governor Joe Kernan as Acting Governor.
Days later, O'Bannon's condition worsened and based on his living will, his family decided to use no further means of support and care. He died on September 13, 2003, aged 73, leaving behind his wife Judy (Asmus), three children (Polly, Jennifer and Jonathan) and five grandchildren. O'Bannon was an organ donor (after having signed legislation making organ donation easier in Indiana), including his cornea which helped an Illinois woman regain her sight. He was cremated and buried in the O'Bannon family plot at Cedar Hill Cemetery in his hometown of Corydon, Indiana.
He was succeeded in office by Lieutenant Governor Joe Kernan of South Bend, who was sworn into office just hours after O'Bannon's death in an emotional ceremony.
O'Bannon is the subject of a 2006 biography, Legacy of a Governor: The Life of Indiana's Frank O'Bannon. The book, written by former O'Bannon staffer Andrew Stoner, contains a foreword by his wife, Judy O'Bannon. The book was published by Rooftop Publishing, Inc. of Bloomington, Indiana.
The Frank O'Bannon Public Service Award is given annually by Ivy Tech Community College. The 2007 winner was former State Senator Wayne Townsend of Hartford City, the Democratic candidate for governor in 1984.
In June of 2008 a memorial was created in honor of Frank O'Bannon next to the state's original capitol building in his hometown of Corydon. The memorial was built at a cost of $200,000, coll from private donations, and features a life size statue of O'Bannon setting on a park bench.