Dalglish knew it would be difficult to repeat the success in the league and the Cup from the 1985-86 season. Liverpool fans didn’t know what to expect when it was announced that Ian Rush would be leaving for Juventus when the 1986-87 season was over. Liverpool were not consistent enough and at the turn of the year Arsenal had 48 points in 1st place with Liverpool trailing 9 points behind in 3rd place. Liverpool took 1987 by storm and won 9 out of 11 next league games, keeping 6 clean sheets and progressing in the League cup. Liverpool had in mid March gained a few points' lead on their neighbours Everton with Arsenal falling by the wayside. It certainly looked like Liverpool would retain the title, but then the Reds lost three league games in a row. Everton took their chance and won the championship by a 9 points' margin. Liverpool also lost the League cup final 1-2 to Arsenal and finished the season empty handed for only the third time in 15 years.
Dalglish explained Liverpool's failure: "The board had approached me at Christmas 1986 and said there was money available for players. I gave them the names of five players and I got four of them - Barnes, Beardsley, Houghton and Aldridge. It took time to buy these four. That was instrumental in 1986-87 being such a fruitless season at Anfield. It was my fault we didn't win anything. I didn't want to spend Liverpool's money rashly. Bringing in any old player for a short-term tonic seemed irresponsible. I wanted to wait until those four quality players became available. That shows how supportive Liverpool's directors were. They were also prepared to wait until the right players were ready. The board knew Liverpool might not win anything that season but that I was planning for the future. Their patience was rewarded."
Golden boy Rush went to Italy and not much had been seen of his replacement. John Aldridge had been signed in February, but didn’t get many chances even though he did well when he played. Dalglish had his reasons and told Aldridge that he intended to play another system with wide men the next season where he would fit in and become an important part of the team. But Dalglish also needed to replace one of the best players in the club's history, he needed to replace Kenny Dalglish, the player. He'd had his eye on John Barnes at Watford for a while. Barnes wanted to leave and Dalglish didn’t hesitate but Barnes took his time to decide and seemed to be waiting for an offer from Italy which never came. Barnes eventually signed for Liverpool for the fee of 900,000 pounds. Liverpool then paid a UK record fee of 1,9 million pounds to Newcastle for Peter Beardsley. Dalglish took a bit of a gamble and needed all his talent as manager to create a strong team spirit. After taking over from Joe Fagan before the 1984-85 season he had slowly rebuilt the team on strong foundations laid by his predecessors with the ever helpful Bob Paisley by his side his first couple of years in management. The vintage of 1987-88 was his team, taking a more adventurous approach to its games.
Highbury was to be the first stop in the new season and as soon as the 9th minute Liverpool showed what was to be expected. John Barnes with the cross and Aldridge headed home. Liverpool couldn’t play at Anfield for a few weeks because of repairs underneath the Kop and had to play again away against Coventry. Nicol scored a brace, Aldridge scored from the spot and Beardsley his first goal for the club in a 4-1 victory. Coventry manager, John Sillett, said Liverpool's performance was probably the finest he has ever seen in the First Division. Next was West Ham but a rare mistake by Hansen allowed the Hammers back into the game and the result was a draw. On the 12th of September Liverpool returned to Anfield and goals from Aldridge and Barnes against Oxford made the crowd go wild. The fans had no reason to keep quiet for the first 29 league games of the season. Nicol scored a hat trick against Newcastle and three consecutive 4-0 games followed against Derby, Portsmouth and the leaders QPR. Peter Shilton, the Derby goalie, was stunned by Liverpool's performance: "This is the best Liverpool team I have ever played against." Alan Ball, the Portsmouth manager, thanked Liverpool for the lesson: "It was a valuable experience for my team, it was a sheer joy to watch them in the second half. They have players that can play football and win games, I bet I could play for that team."
Liverpool didn’t falter in the league until the 20th of March. The Reds had played 29 games, won 22, drawn 7, scored 65 goals and conceded 13. The bookies in England had stopped taking bets on who would win the title. Legends like Michel Platini praised their performance after watching them live defeat Arsenal 2-0 with breathtaking football. Liverpool had equalled Leeds’s record since 1974, but Everton and Wayne Clarke made sure Liverpool didn’t stay undeated for 30 games. The bookies were relieved because they would have lost a fortune if Liverpool hadn’t lost a game throughout the season. Dalglish wasn't amused: "As the final whistle signalled a 1-0 defeat, I felt so frustrated I kicked a bucket placed outside the dugouts at Goodison. It was plastic, so the side buckled and the water shot up all over me. I was soaked, standing there dripping as I congratulated the other bench: 'Well done, Howard, well done, Colin.' Drip, drip. I met Howard Kendall and Colin Harvey afterwards for a drink and they gave me some stick about the bucket."
Liverpool were by no means out of steam despite the Merseyside derby defeat and saved their best for a 4th place Nottingham Forest team at Anfield on 13th April. Liverpool destroyed Forest 5-0 prompting Tom Finney, one of the best players ever to play in England, to declare: "It was the finest exhibition I've seen the whole time I've played and watched the game. You couldn't see it bettered anywhere, not even in Brazil. The moves they put together were fantastic." The chairman of Forest agreed and said it wouldn’t have made any difference who the opponents had been that night, no team in Europe would have stood a chance.
On 23 of April Beardsley scored the winner against Tottenham at Anfield and the title was secured with four games to go. The only disappointment was when Liverpool unexpectedly lost to Wimbledon in the FA Cup final and prevented another double.
Dalglish had got it right when signing players during the summer. Aldridge scored 29 goals in 45 games, Beardsley scored 18 in 48 games and John Barnes scored 17 in 48 and was voted the Player of the Year by both the media and the players. It didn’t come as a surprise that Dalglish was voted the Manager of the year. Liverpool won the title in style and the way they played reflected their manager. This team played a more offensive football than the previous teams and was more about individual play of great players even though the team spirit was high. This was Kenny Dalglish’s team.
The build-up to the 1988-89 season wasn’t as expected. Peter Robinson was relaxing in the Spanish sun when he spotted a magazine article that said talented striker, Alexander Zavarov, was on his way to Juventus and that meant that there would be one foreign player too many. Robinson suspected, who would be left out and immediately phoned Dalglish. On the 18th of August, two days before Liverpool played Wimbledon in the Charity shield, the press was stunned; Kenny Dalglish had just announced that Ian Rush had returned to Liverpool. The excitement before the season was great and the fans wondered how he was going to use Barnes, Beardsley, Aldridge and Rush in the same side. Rush was on the bench in the first league game against Charlton, but replaced Beardsley in the second half. Aldridge reminded everyone who was the main goalscorer with a stunning hat trick. There was an important part of the defence missing, Hansen was injured, Lawrenson had retired and after only five games Grobbelaar got injured and was out for 25 games. Barnes missed a month through injury. Beardsley and Rush played up front but Rush still didn’t manage to score. He finally got on the scoresheet in the seventh game of the season against Walsall in the League cup and then scored 3 goals in the next 5 games. Some dissatisfaction became evident after the 1-2 loss against Nottingham Forest 26th of October. This was the third loss of the season, one more than all of the season before. Dalglish’s decision to bring Rush back to Anfield seemed to have backfired. No player was contributing in front of the goal until mid January. Aldridge had only scored 7 goals compared to 20 the year before, Barnes 6, Rush 5 and Beardsley 4. After 10 league rounds Liverpool were eight points behind Norwich in fourth place.
After the 1-3 loss against Man Utd on 1st of January Dalglish had enough. He locked the door to the dressing room and let his frustration all out. He told his players off in no uncertain terms and later Ray Houghton revealed that he had never before seen Kenny this angry. Dalglish apologised for his outburst in training the following day, but reitarated another display like the one against Utd would not be tolerated. Everyone spoke their mind and it is safe to say that this was the turning point of the season. Liverpool won 16 out of the next 19 league games and drew three times. Aldridge scored 20 goals. Losing was not on the agenda.
The team was also doing well in the FA Cup but in the semi-finals against Nottingham Forest football got a whole new meaning for Kenny Dalglish. This was the third time Dalglish had witnessed a tragedy in a football stadium. When he was in the Celtic squad at the age of nineteen, 66 died at Ibrox, 39 died at Heysel in ’84 and 96 Liverpool supporters died from injuries received at Hillsborough. The press and the supporters saw a new side to Dalglish. When the city of Liverpool needed someone strong to lead the city through these difficult times Dalglish was prepared. "I cannot even think of the name Hillsborough, even cannot say the word, without so may distressing memories flooding back. I don’t know how many funerals I went to. Marina and I went to four in one day. All the funerals were harrowing. All those families mourning the loss of their loved ones. Most of the church services ended with "You’ll never walk alone." I couldn’t sing through any of the songs or hymns. I was too choked up. The words could never come out. I just stood there in a daze, still trying to come to terms with what had befallen the club and the people I had so admired. I did what I had to do after Hillsborough, certainly not through any delusions of grandeur."
About two weeks later the Liverpool players tried to concentrate on football again. Liverpool won Forest 3-1 in the replayed semi-final and fate would have it Everton would be their opponents in the final. Even though the FA Cup final is usually the biggest day of the season this day had a special meaning as both teams were from Liverpool. Rush was on the bench and Aldridge put Liverpool up front but Stuart McCall equalised less than a minute before the final whistle. Ian Rush came off the bench in overtime which turned out to be a good substitution. Rush scored two goals and Liverpool won the Cup for the second time under Dalglish.
Liverpool tried their best to concentrate on the title race. Three days after the cup final Liverpool won West Ham 5-1 at Anfield. The last league game was between the two top teams in the League at Anfield. Liverpool had 76 points but Arsenal 73. The goal difference for Liverpool was 65-26 (+39) but Arsenal's 71-36 (+35). Liverpool could even lose but not with two goals, because Arsenal would then win the title with more goals scored. It was 0-0 at half-time and Liverpool were cruising. Alan Smith scored for Arsenal after 52 minutes. The clock kept on ticking, but in the final minute Arsenal attacked for the very last time with Michael Thomas scoring the deciding goal. 45 seconds passed after Liverpool started again and then the ref blew the final whistle. The Liverpool players got down onto the pitch and cried. Dalglish looked desperately at Moran and Evans. Nine months of hard work had gone down the drain with less than a minute remaining of the season.
This eventful season could hardly had ended in more dramatic circumstances leaving Dalglish out ot breath, but the events at Hillsborough put matters in perspective: "When television realised in advance that the race was between Arsenal and Liverpool, they moved our fixture to the end of the season. It was a bad decision and one that probably cost us the title. Three big, tense games in six days takes a lot out of players. We were very disappointed not to win the League but Arsenal deserved to. They had one more goal than us. But if I was going to pick between the League or the FA Cup that week I would have picked the Cup because of Hillsborough. It meant a lot more to the people at that particular time that we won the Cup."