From October 1778 through July 16, 1779, the 17th Regiment was on duty at Fort Independence and the fortifications at Stoney Point. For the regiment, this was a fairly mundane period of garrison duty and getting used to a new commanding officer, Lieutenant-Colonel Henry Johnson, who replaced Mawhood in late 1778. The 17th spent the winter of 1778 and the early spring of 1779 in posts around the edge of New York City, especially at Fort Knyphausen (the re-named Fort Washington that had been captured in 1776), occasionally sending details to act as the Commander-in-Chief's guard. In late May, a force consisting of the 17th, 33rd, 42nd, 63rd, and 64th Regiments, along with the battalions of Light Infantry and Grenadiers and detachments of provincials, advanced up the Hudson River and seized King's Ferry. Construction began on two posts, each anchoring one end of the ferry. On the northeastern shore stood Verplanck's Point, while on the southwest stood Stoney Point. Verplanck's Point was heavily fortified with enclosed works and garrisoned by the 33rd Regiment, while the Stoney Point defenses, mostly constructed by the 64th Regiment, consisted of two lines of abbattis and several open artillery emplacements with no enclosed works.

While the lines of abbattis continued for a short distance into Haverstraw Bay and the Hudson River on either side of the point, they were no real obstacle to an attack. The artillery emplacements were constructed in such a manner as to prevent the guns from be sufficiently lowered to fire effectively at close range on advancing forces. When the main force retired from the area, Lieutenant-Colonel Henry Johnson, with the 17th Regiment, the 71st Grenadier Companies, and detachments of Provincials and Royal Artillery was left at Stoney Point, under the overall command of Colonel Webster. Johnson recognized the danger of not having an enclosed work in his post and began construction of one in late June. Unfortunately, the work was not completed by July 15th when Continental General Anthony Wayne stormed the post with 2,000 men of the Continental Light Infantry. Columns moving around the edges of the point were able to enter the works behind the second line of abbattis, cutting off Stoney Point's defenders and isolating them between the two lines.

Captain Francis Tew was killed by a rebel volley while leading his company in a bayonet charge to clear the rebels from the upper works. Realizing that he was encircled, Colonel Johnson requested Wayne's terms of surrender, and when promised good treatment for his men, he agreed to surrender the garrison. Isolated posts, including a detachment of 20 men from the 17th with an officer of the Royal Artillery, negotiated similar terms, promising to fight to the death if they were not properly treated. The story that the garrison surrendered without a fight is a malicious myth and had Wayne not agreed to grant acceptable terms, it is quite likely that his force would have suffered severe and debilitating casualties in attempting to posses the post. On July 16th, the garrison was marched off for internment in Pennsylvania. The officers were seperated from the men, in strict defiance of accepted protocol, and sent to Philadelphia, while the men marched to Goshen under their non-commissioned officers. While in route to Goshen, a portion of the 17th attempted to overpower their guards and escape, according to a report found in the George Washington Papers. At least 11 men of the regiment were wounded in the attempt- the number of rebels wounded and killed is unknown. While in captivity, the men were put to work in shoe factories and other business providing war supplies to the rebels, again in defiance of accepted protocol. At least one man deserted while on this duty- it is not presently known if he found his way back to the British lines. The officers of the regiment were exchanged in December 1780, while the enlisted men had returned by January 1781, when Colonel Johnson was court-martialed, at his own request, for the fall of Stoney Point, for which he was found not guilty.