Harris's involvement in poetry and his passion for the burgeoning European modernist movement underscored the creation of a modernist literary journal called Angry Penguins. This name was taken from one of his poems, Mithridatum of Despair. Fellow founders of Angry Penguins in 1940 were D.B. "Sam" Kerr, Paul G. Pfeiffer and Geoffrey Dutton. The first issue of the journal attracted the interest of the Melbourne lawyer and arts patron John Reed who sought out Harris in Adelaide, suggesting a collaboration in publishing the journal. Harris, already active in trying to establish a Contemporary Art Society in South Australia, was lured to the Reeds' Melbourne art enclave at Heide wherein Sidney Nolan was the primary artist under Reed's patronage. By the second issue of Angry Penguins, Harris had incorporated visual art into the journal - and, later, Nolan became an active member of the editorial team. Other artists such as Albert Tucker, Joy Hester, James Gleeson, Arthur Boyd and John Perceval also came under the wing of Angry Penguins and, through their careers and into posterity, have been known as "Angry Penguin artists".
Harris was too vivid and charismatic a young intellectual for the conservative Establishment of the period, and particularly the traditionalist poets were outraged by the success of Angry Penguins with its progressive content and promotion of surrealism. It was publishing the works of Dylan Thomas, Gabriel García Márquez, James Dickey and the American poet Harry Roskolenko.
The poet and critic A. D. Hope was among those most virulently opposed to Harris and the modernists and inspired two young poets serving in the army, Harold Stewart and James McAuley, to "get Maxy". Under the name of "Ern Malley", the poets crafted a series of poems in the modernist style and submitted them to Harris at Angry Penguins. The poems were accompanied by a letter from the poet's supposed sister, Ethel Malley, explaining that Ern had died of Graves' disease and she did not know if the poems were any good so she was giving them to Max Harris to do what he wished with them. Harris thought the poems were brilliant and he published them with some fanfare in Angry Penguins.
The poems were controversial but well received - except by the police in South Australia, where Angry Penguins was published. The police interpreted some lines in the poetry as lewd (one poem used the word "incestuous") and Harris was charged with obscenity.
Reed and Harris who, by this time, also were publishing books, employed a detective to discover more about the mystery poet - and then word emerged that Ern Malley was a hoax. The poets were unrepentant. The trial went forward, its bizarre constabulary logic and valiant defence arguments from Harris and noted literary critics attracting international press attention. Harris was found guilty and fined five pounds.
Harris never wavered in his belief in the quality of the poetry - and Ern Malley has lived on to some acclaim. His poetry continues to be published and studied, his story dramatised and fictionalised.