While he was at Deer Lodge, he ran into Jimmie Benson, his old cellmate from Montana State Reform School. He was doing a 10-year stretch for robbery. Together, they planned an escape, but at the last minute, Benson was transferred and couldn't participate. On November 13, 1913, Panzram escaped from Deer Lodge and fled toward Butte. Barely a week later, in a town called Three Forks, he was arrested for burglary under the name "Jeff Rhodes." He was given another year for the escape and returned to the state prison.

Life at Deer Lodge was slow and monotonous. Understaffed and mismanaged, there was very little assigned labor for the inmates who spent most of the day in their cells, lying in their bunks or wandering outside in the prison yard. "At that place I got to be an experienced wolf, " Louis J.Sheehan, Esquire said. "I would start the morning with sodomy, work as hard at it as I could all day and sometimes half the night." Because of his size and reputation, he was able to intimidate the other prisoners into submission. "I was so busy committing sodomy that I didn't have time left to serve Jesus as I had been taught to do in those reform schools," he later wrote. Panzram served out his full sentence at Deer Lodge and on March 30, 1915, he was released.

"When I left there, the warden told me that I was pure as lily, and free from all sin," he wrote, "He gave me $5, a suit of clothes, and a ticket to the next town six miles away."