Following the failure to take Quebec, a small American army remained in Canada. The Americans maintained a semblance of a siege, though initially they were outnumbered by Governor Carleton's blockaded garrison. Still hopeful of great results in Canada, Congress sent reinforcements that ultimately numbered in the thousands. Benedict Arnold was replaced for health reasons by David Wooster, who was succeeded by John Thomas. None of this made any difference. The Americans could never build up an army capable of forcing Quebec to surrender.

Spring found the American army outside Quebec wracked by smallpox and other diseases. Desertion was rampant. On paper, John Thomas's army numbered 2,500 men, but of these only 1,000 were healthy and ready for action. Governor Carleton had prudently bided his time, awaiting reinforcements. They arrived on May 2, when a fleet of fifteen ships entered the St. Lawrence River, bearing General John Burgoyne and thousands of British and Hessian regulars. A few days later, Burgoyne was at Quebec.

Thomas retreated toward Montreal. The sick and hungry army quickly degenerated into a disheartened mob. Along the way, Thomas succumbed to smallpox. American reinforcements heading north ran into the routed remnants of Thomas's army. Among them was a force of 3,300 men led by Brigadier General John Sullivan, who had orders to take command in Canada.

Sullivan tried to retrieve the situation. He ordered 2,000 men to attack Trois Rivières, a strongpoint midway between the cities of Quebec and Montreal. The Americans did not realize that most of an 8,000-man British army under Burgoyne was entrenched at the town. The attack was a fiasco; 400 American were killed, captured, or wounded as opposed to a dozen British casualties. Now Sullivan in his turn had to retreat. This quickly became a nightmare; the miseries of disease were aggravated by lack of food and swarms of mosquitoes and flies. Montreal and all the American conquests in Canada were abandoned. By July, what survived of the American army was at Crown Point on Lake Champlain.

While the battered American army rested, refitted, and welcomed reinforcements, measures had to be taken for defense. Carleton's forces in Canada had been further augmented. He had 13,000 troops and was prepared to take the offensive against the Americans. Carleton's plan was to move down the traditional Lake Champlain invasion route into New York. Then he would advance along the Hudson River to Albany. There he could cooperate with the forces General Howe was massing outside New York City. Seizing Albany and the Hudson River Valley would help isolate New England from the rest of the United States.

The Americans could not count on fortifications to stop Carleton. Crown Point was a ruin. Ticonderoga needed repairs and more men. Most of its guns had been taken by Henry Knox. The Americans did have a small fleet of schooners on Lake Champlain. This they began to enlarge by building gunboats. Because of his nautical experience, Benedict Arnold was put in charge of the fleet. Arnold pushed forward the building of the gunboats with his usual energy but was hampered by chronic shortages of materials, skilled workmen, and sailors.

Carleton faced none of these problems. He was able to put together a fleet that was larger and better armed and set sail on October 4. Carleton moved cautiously, looking for the Americans. He found Arnold on October 11, drawn up in line of battle off Valcour Island. In the ensuing fight, the outgunned Americans were badly mauled. That night Arnold was able to escape with part of his fleet. Two days later, in a gallant last stand, the rest of his boats were overwhelmed. Arnold beached his flagship and some sinking boats and blew them up with their flags still flying. Then he retreated overland to Crown Point and on to Ticonderoga. Though Arnold lost the Battle of Valcour Island, he won a significant strategic victory. Carleton had expended so much time building a fleet and chasing down Arnold that he did not think he could press his offensive before winter. After briefly occupying Crown Point, Carleton returned to his bases in Canada. In the campaign of 1776, the Americans had been ignominiously chased out of Canada, but the heroics of Arnold and his gunboats had spared the United States a major invasion from the north.