Peavey served in the Idaho Senate from 1969 to 1976 and from 1978 to 1994. In the early and mid-1990s he served as the Idaho Senate Minority Caucus Chairman. As a state senator, Peavey was noted for rarely appearing in public without wearing a cowboy hat.
In 1994 Peavey was the Democratic nominee for lieutenant governor.
He was defeated by the Republican incumbent Butch Otter, who was later elected governor in 2006.
In 1974, after repeated attempts to pass a Sunshine Law. A law requiring lobbyists to register and political campaign disclosure, in the legislature were unsuccessful, Peavey led a successful statewide campaign to pass one by ballot initiative. The passage of the act angered state Grand Old Party party officials who recruited a Rupert farmer to run against him in the 1976 Republican primary.