With the outbreak of the Civil War, Kentucky declared itself neutral and stayed in the Union. Hanson was named as colonel of a regiment of Confederate troops he had raised in Lexington, Kentucky but which enlisted in Tennessee because of Kentucky's neutrality. When President Abraham Lincoln sent Federal troops into Lexington and raised the Union flag over the city, Hanson and his Confederate 2nd Kentucky Infantry Regiment were "orphaned", since they could not return home unless Lexington fell to the Confederates. The regiment was taken prisoner with the Confederate surrender of Fort Donelson to Union Brigadier General Ulysses S. Grant. After being exchanged for Michael Corcoran 7 months later, Hanson was presented with a new horse by admiring friends. His regiment reenlisted for the war, and Hanson was promoted to brigadier general in December 1862, commanding his old regiment as well as the 4th, 6th and 9th Kentucky Infantry regiments, plus the 41st Alabama Regiment and Cobb's Battery, in Major General John C. Breckinridge's division, Lieutenant General William J. Hardee's corps.
In his first battle as a general, Hanson was mortally wounded on January 2, 1863, during a charge at Murfreesboro (Stones River) when he was struck above the knee by the fuse of a spent artillery shell. His brother-in-law vainly tried to stop the bleeding. He died two days later at the age of 35, with his last words as "I die in a just cause, having done my duty." General Breckinridge remarked in his official report, "Endeared to his friends by his private virtues and to his command by the vigilance with which he guarded its interest and honor, he was, by the universal testimony of his military associates, one of the finest officers that adorned the service of the Confederate States."[4]
Hanson was buried at Lexington Cemetery in Lexington, Kentucky.[5]