In December 1920, in the middle of the Anglo-Irish War, the British Government passed the Government of Ireland Act. This was intended to find a solution to the "Irish problem" by partitioning Ireland into two parts, each of which would have a separate home rule parliament. In 1921 the first elections were held to these new bodies. The general election created the House of Commons of Northern Ireland, and the House of Commons of Southern Ireland. In both jurisdictions the electoral system used was the Single transferable vote.
Sinn Féin nationalists participated in these elections but refused to recognise the new home rule parliaments. Instead the party treated the elections in both parts of Ireland as elections to the Second Dáil of one country. Thus the Second Dáil theoretically consisted of members elected in both parts of Ireland.
The general election to the Northern Ireland House of Commons occurred on 24 May. Of 52 seats, forty were won by Unionists, six by moderate nationalists and six by Sinn Féin. No actual polling took place in the "Southern Ireland" constituencies, as all 128 candidates were returned unopposed. Given the backdrop of the increasingly violent War of Independence, any candidates opposed to Sinn Fein and their supporters could expect to be shot or harassed by the Irish Republican Army (IRA). Supporters of the Irish Labour Party stood aside to allow the constitutional situation to run its course. Of these 128, 124 were won by Sinn Féin, and four by independent Unionists representing the University of Dublin (Trinity College). Only the Sinn Féin candidates recognised the Second Dáil and five of these had been elected in two constituencies, one in each part of Ireland, so the total number of members who assembled in the Second Dáil was 125.
Despite its republican ethos, the Second Dáil responded favourably to George V's proposals for a Truce, which became effective from noon on 11 July 1921. This was upheld by nearly all of the combatants while the months-long process of arranging a treaty got under way. While the truce was welcomed by enthusiastic crowds, and some arrangement beyond the Home Rule Act 1920 provisions was in prospect, it was also evident that the IRA military campaign had not secured the 32-county republic claimed by the Dáil, and that a separate government in Northern Ireland was now functioning.
Between the Truce and the signing of the Treaty the Second Dáil only sat on 10 days, and did not discuss in detail the options available to it. Consequently a bitter debate started on 14 December, when nearly half the TDs discovered that its terms as finally agreed were a long way from the all-Ireland republic that they had campaigned for.
On 14 September 1921 the Dáil ratified the appointment of Arthur Griffith, Michael Collins, Robert Barton, Eamonn Duggan and George Gavan Duffy as envoys plenipotentiary for the peace conference in England. Of the five only Collins, Griffith and Barton were members of the cabinet. These envoys eventually signed the Anglo-Irish Treaty on 6 December. After almost a month of acrimonious debate the treaty was formally ratified by Dáil Éireann on 7 January 1922. The 'Treaty Debates' should also be seen as the first publicly reported debate on what Sinn Féin felt that it had achieved and could achieve. The vote went 64 in favour to 57 against. In the vote the three deputies who represented more than one constituency were each only permitted to vote once, but this would not have changed the outcome.
As the leader of the anti-Treaty minority De Valera resigned as President, and on 9 January his opponent Arthur Griffith took his place on a vote of 60-58.
To satisfy the requirements of the British constitution, the treaty also had to be ratified by the House of Commons of Southern Ireland. Thus Irish nationalists ended their boycott of the home rule parliament to attend the southern House of Commons as MPs. This they did alongside the four Unionist MPs who had refused to recognise the Dáil. In this way the treaty was ratified a second time in Dublin, this time unanimously as the anti-Treaty TDs refused to attend.
Under the terms of the Anglo-Irish Treaty a provisional parliament, considered by nationalists to be the Third Dáil, was elected in the Irish general election on 16 June 1922. Collins and de Valera agreed a Pact between the pro- and anti-Treaty wings of Sinn Féin and this pact and the elections were endorsed by the Second Dáil. The new assembly was recognised both by nationalists and the British Government and so replaced both the Parliament of Southern Ireland and the Second Dáil with a single body. The anti-Treaty groups of IRA men, TDs and their supporters were still bitterly opposed the settlement, despite the election result, and this led on to the Irish Civil War.
Within Irish republicanism there is a minor current of thought which argues that the Second Dáil continued to exist after the establishment of the Irish Free State. In December 1938, a group of seven people, who had been elected to the Second Dáil in 1921, met with the IRA Army Council under Seán Russell. At this meeting, the seven signed over what they believed were the authority of the Government of Dáil Éireann to the Army Council. Henceforth, the IRA Army Council perceived itself to be the legitimate government of the Irish Republic.