In 1780, he was appointed Commandant of the Spanish Artillery, and as such was employed at the famous Siege of Gibraltar, and was present with the army which, under the Duke de Crillon (the conqueror of Minorca), made "the last desperate and unparalleled efforts" to restore the key of the Mediterranean to the hands of King Charles III. General Elliot of Stobs, in Midlothian, with 7000 men, valiantly defended the rock against 40,000 soldiers who assailed it by land with 200 pieces of cannon: and against the combined fleets of France and Spain, forty-seven sail of the line, seven three-deckers (the strongest that had ever been built), eighty gunboats, and a swarm of frigates and smaller vessels, which opened a shower of shot from 400 pieces of cannon against him. The first shot was fired on the 12th January, 1780, and it killed a woman in Gibraltar. The Spanish camp was crowded by French _noblesse_ and Spanish hidalgos, who had all hastened there to behold the _fall_ of this great fortress. Under Lacy, the Spanish artillerists fired with great precision and effect; but the determined old General Elliot defended Gibraltar with the most obstinate bravery; and General Boyd (his countryman) recommended, for the first time, a discharge of red-hot balls, which had the most disastrous effect upon the Spaniards by land and sea; for at least 1500 of them perished. The British fired 716 barrels of powder and 8300 rounds of cannon-balls (more than half of which were _red hot_) between the time of firing the first cannon and the _last_, on the 2nd February, 1783, when the French and Spaniards were completely discomfited, and a peace was signed, which ceded the fortress to Britain for ever. For his services Lacy obtained the Grand Cross of Charles III., and the rank of Commander of the Cross of San Iago, an old Spanish order of chivalry instituted by King Ramiro, in commemoration of a victory over the Moors, in 1030--their badge is a red cross in the form of a sword. He was also made Titular of the rich Commanderie of _Las Cazas Buenas_, at Merida, in Estramadura. After the peace between Spain and Britain was firmly established, he was sent successively as plenipotentiary to Gustavus III. of Sweden, and to the Empress Catherine II. of Russia (widow of the Czar Peter III.); and the success he obtained in his embassies proved that he had secured for himself and his royal master the love and esteem of the courts of Stockholm and St. Petersburg. Immediately on his return fresh honours were heaped upon him; he was named, _par interim_, Commandant General of the Coast of Granada and Member of the Supreme Council of War; then Lieutenant-General of the Spanish Army, Commandant of the Corps of Royal Artillery, and sole Inspector-General of that branch of the service. He was also made Inspector-General of the manufactories of arms, cannon, and all the munitions of war throughout Spain and the two Indies.