The first recipients of C-123 aircraft were USAF transport units, soon followed by the United States Coast Guard (USCG) who used the aircraft for search and rescue missions, and even the U.S. Air Force Demonstration Team, the "Thunderbirds," would use C-123s for a time as a logistics support aircraft for transporting the team's ground crews and equipment. The type would also be widely exported under various U.S. military assistance programs, directly from USAF stocks.
The aircraft was nearly ignored by the USAF for service in Vietnam, but a political rivalry with the U.S. Army and the Army's use of the CV-2 Caribou and later pre-production order for the de Havilland Canada C-8 Buffalo, led to a decision to deploy C-123s there. To compete with the well-performing CV-2, the USAF and Fairchild furthered development on the C-123 to allow it to do similar work on short runways. This additional development increased the utility of the aircraft and its variants to allow it to perform a number of unique tasks, including the HC-123B which operated with the USCG fitted with additional radar equipment for search and rescue missions through 1971, and the C-123J which were fitted with retractable skis for operations in Greenland and Alaska on compacted snow runways.
By 1962, the C-123K variant aircraft was evaluated for operations in Southeast Asia and their stellar performance led the Air Force to upgrade 180 of the C-123B aircraft to the new C-123K standard, which featured auxiliary jet pods underneath the wings, and anti-skid brakes. In 1968, the aircraft helped resupply troops in Khe Sanh, Vietnam during a three-month siege by North Vietnam.
A number of C-123s were configured as VIP transports, including General William Westmoreland's White Whale. The C-123 also gained notoriety for its use in "Operation Ranch Hand" defoliation operations in Vietnam. Oddly enough, the USAF had officially chosen not to procure the VC-123C VIP transport, opting instead for the Convair VC-131D.
The first C-123s to reach South Vietnam were part of the USAF's Special Aerial Spray Flight, as part of Operation Ranch Hand tasked with defoliating the jungle in order to deny rebels their traditional hiding places. These aircraft began their operations at the end of 1961. Aircraft fitted with spraying equipment were given the U prefix as a role modifier, with the most common types being the UC-123B and the UC-123K. Aircraft configured for this use were the last to see military service, in the control of outbreaks of insect-borne disease. The C-123 was also used as "jump aircraft" for U.S. Army Airborne students located at Lawson Army Airfield, Fort Benning, Georgia in the late 1970s and early 1980s. This aircraft was used in conjunction with the Lockheed C-130 Hercules and Lockheed C-141 Starlifter.
In 1958, the U.S. Coast Guard received its first HC-123B, followed by seven more in 1961. Installation of a dome on the nose of the aircraft accommodated a large radar allowing the plane to meet the requirements for search and rescue and long range flight over water. The Coast Guard manned the aircraft with a crew of five: two officers serving as Pilot and Co-Pilot, augmented by an enlisted Flight Mechanic, enlisted Navigator, and an enlisted Loadmaster. The HC-123B's role in the Coast Guard was slowly replaced by Coast Guard HC-130 aircraft in the 1960s and 1970s as those newer airframes came on line.
With the end of the Vietnam War, remaining C-123Ks and UC-123Ks were transferred to tactical airlift units of the Air Force Reserve (AFRES) and the Air National Guard (ANG) that were operationally-gained by Tactical Air Command (TAC) prior to 1975 and Military Airlift Command (MAC) after 1975.
The 302nd Tactical Airlift Wing at Rickenbacker AFB (later Rickenbacker ANGB), Ohio flew the last UC-123Ks Providers in operational service before converting to the Lockheed C-130 Hercules. Known as the Special Spray Flight, these aircraft were used to control insect-borne diseases, with missions to Alaska, South America and Guam being among the humanitarian duties performed by this Air Force Reserve unit.
The final examples of the C-123 in active U.S. military service were retired from the Air Force Reserve and Air National Guard in the early 1980s. Some airframes were transferred to the Federal Aviation Administration (FAA) for test and evaluation programs while others were transferred to the U.S. Department of Agriculture (USDA) for miscellaneous programs. These aircraft were also retired by the end of the 1990s.