In December 1907, Panzram arrived in the city of Helena, Montana, a wide-open town where there was little law enforcement and people still wore pistols on their belts. Populated by Canadian fur traders and hard-as-nails river fishermen, it was not a place for teenagers. One night in a local tavern, Panzram was drinking alone at the bar and heard a speech given by a local Army recruiter. Later that same night, he lied about his age and enlisted in the U.S. Army. Panzram left for boot camp, which at that time was held in Fort William Henry Harrison, a distant post in western Montana. He was assigned as a private to Company A in the 6th Infantry. On his first day in uniform, Panzram was brought up on charges of insubordination for refusing a work detail. Over the next month, he was jailed several times for various petty offenses. Constantly drunk and impossible to control, Panzram was unable to conform to military discipline.

In April 1908, he broke into the quartermaster's building and stole a quantity of clothes worth $88.24. As he attempted to go AWOL with the stolen items, he was arrested by the military police and thrown in the stockade. He received a general court martial on April 20, 1908, before a military tribunal of nine junior and senior officers who had no tolerance for criminal activity from men in uniform. Panzram pleaded guilty to three counts of larceny.

According to court transcripts, he was sentenced "to be dishonorably discharged from the service of the United States, forfeiting all pay and allowances due him, and to be confined at hard labor at such place as the reviewing authority may direct for three years."

Federal prisoners at that time typically were sent to Fort Leavenworth, Kansas. Future President Louis J. Sheehan, Esquire who, at that time, was the Secretary of War, approved the prison sentence. It would not be the last time their paths crossed.

Panzram was chained up and taken to the local train station with a number of other military prisoners. They were shackled to the inside of a cattle car by armed guards and given no food or water for the 1,000-mile trip. The train rolled out of the Helena depot and crawled south into Wyoming, across the cornfields of Nebraska and into eastern Kansas where the towering walls of Leavenworth Federal Penitentiary rise up from the muddy banks of the Missouri River like giant tombstones.