After a brief tenure in the Chair for Tommy Harkness, son of Willie, retired farmer Davie Rae was elected to Chairman of Queen of the South.

(Stephen Dobbie, Davie Rae and Jim Thomson)
John Connolly left the club in May 2004 to join former club St Johnstone, with his former assistant Iain Scott taking over. With a second consecutive fifth place spot in 2004, Queens became the first part-time club to remain in the new First Division for more than two years. The chants of ‘2-0 to the part-time team’ would echo gleefully around Palmerston when relishing victory over full-time opposition. Queens finished fourth in the First Division in 2005 under ‘Scotty’ - their highest finish since 1963. Scott stayed at Palmerston until the Autumn of that year.
A 2006/07 Scottish Cup run that included a replay penalty shoot out victory over Dundee saw Queens make the quarter-finals before Hibernian won 2 -1 at Palmerston.
Going full time
Chairman Davie Rae made the decision that the club would move to full time football at the start of the 2007/08 season. Gordon Chisholm was announced as being promoted to manager on 28 June 2007 and appointed Kenny Brannigan as his assistant. After an injury filled start to the season Queens picked up with a 10 game unbeaten run in all competitions that started in January. This run propelled them to 4th in Scottish First Division where Queens finished the season – achieving the position with more points than in 2005.
2007/08 Scottish Cup
On 8 March 2008, Chisholm guided Queen of the South to their first Scottish Cup semi-final in 58 years with a 2-0 quarter-final home victory over Dundee at Palmerston. The goals came from prolific marksman Stephen Dobbie and an 84-yard injury time long distance thump from Ryan McCann, meriting an application to the Guinness Book of Records as the longest distance goal ever scored by an outfield player.

("And Ryan McCann will be mobbed." Bob Harris, Jim Thomson, Jamie MacDonald and Andy Aitken prove the tv commentator correct after the full back writes himself into the record books from 84 yards.)
Two days later Queens were formally mentioned in the House of Commons as local MP Russell Brown tabled an Early Day Motion (EDM 1145):-
"That this House congratulates Queen of the South Football Club on a magnificent victory that sees them through to the semi-final of the Scottish Cup for the first time in 58 years; congratulates the entire squad, manager, coaching staff, directors and back-room staff and all the loyal supporters; and wishes them every success at Hampden Park on 12th April."

("We can be heroes" - the Scottish Cup semi final starting line up. The same eleven started in the final the following month.
Thomson. O'Connor, Aitken, Tosh, McCann, McDonald
McFarlane, McQuiken, Dobbie, Harris, Burns)
In the first ever live TV broadcasting of a Queen of the South game, the semi-final was against Premier League side Aberdeen who finished fourth in the league. Although Queens were underdogs, over 10,000 Queens fans were in the crowd of 24,008 to witness an astonishing game. Post punk footballer turned telly pundit, Pat Nevin, described the game as, 'Hardly defences on top'. Four times Queens took the lead with goals through Stevie Tosh, Paul Burns, Sean O'Connor and John Stewart. 3 times Aberdeen hit back with an equaliser including a goal and two assists from Dumfries boy Barry Nicholson - a boyhood Queens supporter. During an 11 minute spell at the beginning of the second half 5 goals were scored, with Queens' fourth goal of the day giving a 4-3 victory for the Doonhamers. Never has post punk Pat been so right. The highest scoring game in a Scottish Cup semi-final took Queens to the final for the first time in their 89 year history. Aberdeen fans in defeat impressively and graciously applauded Queens' victory.

(Stevie Tosh opens the scoring in the semi final. Tosh is the only Queens player in history to have scored in both a semi and a final of the Scottish Cup.)
If reaction to the quarter final was joyous, the semi final aftermath was euphoric.
Dumfries-born rugby internationalist Nick De Luca was among those to applaud the semi final heroics. De Luca said: “It was really pleasing to see Queen of the South reach the Scottish Cup Final: that type of result is what sport is all about."
Television presenter Stephen Jardine said, "I'm absolutely over the moon. It was an extremely exciting match and I'm really looking forward to the final."
Prolific author, Hunter Davies, in one of his press columns described the result as "incredible", prompting reminising of his boyhood memories of living in Dumfries and supporting Queens.
Golfer and Aberdeen fan Paul Lawrie was every bit as magnanamous as the rest of his fellows Dons fans when he said, "We were all down at Hampden for the semi final against Queen of the South, it wasn't the result we were after but Queens played well and probably deserved their victory. Good luck to them in the final. Andrew Coltart is a Queen of the South fan so you can imagine the texts and calls I've had."
Champion race horse trainer, Len Lungo, said, "I cannot wait for the final now".
Hollywood legend, Robert Duvall, clearly with warm memories of his time in and around Dumfries when filming nearly a decade earlier, faxed a message of good will ahead of the final.
After four weeks without a competitive game following the end of the Scottish League Division 1 season the final was against Rangers on May 24 again at Hampden Park. Despite a battling second half performance to pull back the 2 goal half time deficit to 2 - 2 Queens eventually lost 3 - 2. Queens' scorers were Stevie Tosh and long-serving captain Jim Thomson. Afterwards Tosh said to the press, "We showed what we're capable of in the second half, and when I went into the Rangers dressing room they knew they had been in a game. But I'm still bitterly disappointed." Tosh then voiced his frustrations at refereeing decisions that went against Queens.

(Jim Thomson makes it 2-2 in the final)
For a team with the core of its support being in a town with a population of 38 000 Queens took a support of around 15 500 to the final. Queens fans have been widely praised for their good humour and carnival like contribution to the day. Musician and producer, Bill Drummond, described Queens goals in the Cup Final as the greatest moment in his life as a Queens fan. Despite defeat in the final 14 000 fans attended an open top bus parade by the team through Dumfries.