He claimed the Fury Fighting Championship Middleweight Championship in December 2007 after defeating Flavio Mura, Pan-Am Jiu-Jitsu champion Fabio Negao, and Chute Boxe's Daniel Acacio in a tournament.

Palhares quickly rebounded from the loss to defeat veteran Jeremy Horn at UFC 93 by unanimous decision. Palhares was expected to face Italian Alessio Sakara on December 5, 2009 at The Ultimate Fighter 10 Finale, but due to an injury while training, Sakara had to withdraw. On December 12, 2009 at UFC 107 Palhares fought against Lucio Linhares and defeated Linhares by heel hook.

Palhares was expected to face Nate Marquardt on August 28, 2010 at UFC 118, however the bout was moved to September 15, 2010 to headline UFC Fight Night 22 after Alan Belcher was forced to pull out of his bout with Demian Maia with an eye injury. Marquardt defeated Palhares via first round TKO. During the fight, Palhares claimed that Marquardt had greased his leg after failing to secure a leg lock on the ground. Marquardt attacked, catching Palhares off guard as he was complaining to the Referee and won the fight through a ground-and-pound stoppage. Palhares would later apologize for his actions during the fight after it was determined by officials that Marquardt's leg was not greased.

Palhares/Ferreira was expected to take place on August 27, 2011 at UFC 134. However, Ferreira was forced out of the bout with an injury and replaced by Dan Miller. Palhares would defeat Miller by unanimous decision, although there was some controversy when Palhares dropped Miller in the first round and after a few follow up punches, incorrectly thought the fight was over.

Palhares faced Hector Lombard on December 15, 2012 at UFC on FX 6 where he lost via KO at 3:38 of Round 1. Following his loss to Lombard, the UFC announced that Palhares tested positive for elevated testosterone levels in his post-fight drug test and, subsequently, has been suspended for nine-months retroactive to December 14.

In November 2013, Palhares signed a contract with World Series of Fighting, but was already on thin ice as WSOF President Ray Sefo had given Palhares a very stern warning about in-cage conduct.

In July, he was scheduled to fight Jon Fitch at WSOF 11. However, on April 30, 2014, the match was canceled. The fight with Jon Fitch was rescheduled for WSOF 16 on December 13, 2014. Palhares successfully defended his title, winning by kneebar only 90 seconds into first round. Again the length of the submission hold came into question.

Palhares faced Jake Shields on August 1, 2015 at WSOF 22. Shields did well against Palhares for the majority of the fight, but the tables began to turn in the 2nd round with a takedown by Palhares and the subsequent damage Palhares did on the ground. In the 3rd round, Palhares submitted Shields, but faced penalty from the NSAC soon after for once again holding on to a submission after being prompted to let it go by the Referee. Palhares came to the press one day after the incident and claimed innocence.

Following the incident, Palhares was stripped of his welterweight title and suspended indefinitely, with WSOF vice-president Ali Abdel-Aziz saying that Palhares "has mental problems and shouldn’t be allowed to fight until he fixes them."