In 1940 he was named French governor of Indochina, succeeding General Georges Catroux.
Like his predecessor, Decoux initially wanted to continue the fight against the Axis powers, but he swore allegiance to Pétain's regime after realizing that his meager armed forces were no match for the Japanese.
Decoux reportedly received demands from the Japanese in early August for permission to move troops through Tonkin (later Vietnam) in order to build air bases and block Allied supply routes to China. Decoux cabled his Vichy superiors for help, but when no help was forthcoming signed a treaty on 20 September 1940 opening Haiphong harbor to the Japanese giving them the right to station troops in the region.
Decoux worked to improve relations between French colonists and the Vietnamese, establishing a grand federal council containing twice as many Vietnamese as Frenchmen and installing Vietnamese in civil-service positions with equal pay to that of French civil servants. The Indochinese Federal Council, which was composed only of Indochinese, and later the Grand Federal Council, were the formal structures that Decoux felt he needed to build to develop the Indochinese federal consciousness simultaneously with the elevation of the elite. Rather than a legislative or executive body, the Federal Council in both its forms was a body constituted of non-elected elites who gave their opinions to the Governor General to assist him in his decision-making, and served as a forum to strengthen the relations between these elites and the authorities. The GFC replaced the IFC in 1943 by introducing 23 French representatives (from the economy's principal sectors, making it, according to Decoux, more representative) and adding five local members, thereby ensuring that the Indochinese presence outnumbered the European. Decoux believed this would reverse the reluctance of the locals to believe in the genuineness of the politics of collaboration, and he most likely wanted to show goodwill toward the Indochinese peoples following Roosevelt's public statement, heard on BBC radio and known to Decoux and his entourage, that maintaining French sovereignty in Indochina was not a principal objective of the US.
Decoux enforced the discriminatory laws against Gaullists and Freemasons, as well as the anti-Semitic Statute on Jews, despite decrying the laws harmful to the Vichy agenda.
One author claims Decoux to have been unconcerned during the famine of 1945. During this time over one million Vietnamese died of starvation in the countryside and urban cities and the author asserts that the Decoux government did nothing to help the Vietnamese peasants, farmers, and poor, despite soliciting and courting the Vietnamese elite. However, archival records show Allied bombardment of railways and the requisitioning of boats by the Japanese made it impossible to transport rice from the Cochinchina to Tonkin.
On 9 March 1945 the Japanese took direct control of the government and ousted Decoux, establishing the Empire of Vietnam.
Arrested and tried after the war, Decoux was not convicted. He was restored to his rank and prerogatives in 1949. He later wrote the book A la barre de l'Indochine. He died in Paris in 1963.