Moving to Colorado, where he became a practicing attorney, Peña was elected to the Colorado House of Representatives as a Democrat in 1979, where he rose to become Minority Leader.

In 1983, Peña defeated William H. McNichols Jr., a 74-year old incumbent, to become the first Hispanic mayor of Denver, a post to which he was re-elected in 1987. During his time as mayor in the late 1980s and early 1990s, he was instrumental in bringing the Colorado Rockies baseball team to Denver in 1993 .

In 1995 the Justice Department conducted a preliminary investigation into a California transit agency’s awarding of a pension management contract to Peña’s former investment management firm. However, Peña had severed all ties to his former company both prior to the contract and prior to becoming Transportation Secretary. On March 17, 1995 Janet Reno ended the investigation.

Upon leaving the Clinton administration, Peña returned to Denver. In August 1998 he joined private equity firm Vestar Capital Partners where he is a senior advisor.

Peña is the father of three children: Nelia, Cristina, and Ryan Peña. The divorce of Federico Peña and his first wife, Ellen Hart Peña, became final on September 10, 2001. Federico Peña married Cindy Velasquez on September 2, 2006. Cindy Velasquez is a former broadcast executive for Channel 7, KMGH-TV, and Channel 9, KUSA-TV, in Denver, Colorado and has a daughter, Pilar.

On September 7, 2007, Peña announced that he would endorse Senator Barack Obama in the 2008 presidential election, and also serve as Obama’s National Campaign Co-chair. The move was notable in that Peña did not endorse Senator Hillary Clinton, the wife of the president under whom he served. On November 5, 2008, he was named to the advisory board of the Obama-Biden Transition Project.

On October 26, 2011, Peña was elected to serve as a member of the Board of Directors of Wells Fargo. Peña was appointed to the University of Denver Board of Trustees in June 2015.