He was awarded the Military Cross after serving as an officer in World War I , and in 1926 founded the publishing house Peter Davies Ltd.

Davies was an infant in a pram when Barrie befriended his older brothers George and Jack during outings in Kensington Gardens , with their nurse Mary Hodgson. Barrie's original description of Peter Pan in The Little White Bird (1902) was as a newborn baby who had escaped to Kensington Gardens. However, according to family accounts, his brothers George and Michael served as the primary models for the character as he appeared in the famed stage play (1904) and later novel (1911), as a pre-adolescent boy.

Davies volunteered along with his brother George to serve in World War I, and received a commission as an officer. He was a signal officer in France and spent time in the trenches; at one point he was hospitalized with impetigo. He ultimately won the Military Cross, but was emotionally scarred by his wartime experience.[3] His brother George was killed at 21 in the trenches in 1915.

In 1917, while still in the military, Davies met and began to court Hungarian-born Vera Willoughby[4] (a watercolour painter and illustrator, as well as a costume and poster designer),[5] a married woman 27 years older,[6] with a daughter older than he was.[7] He stayed with her when on leave, which scandalized Barrie and caused a rift between the two. His former nurse and mother figure Mary Hodgson disapproved strongly as well. The relationship continued at least through the end of his military service in 1919. In 1926 he published an edition of George Farquhar's The Recruiting Officer featuring illustrations by Willoughby.[8]

In 1926, Davies, with financial help from Barrie, founded a publishing house, Peter Davies Ltd, which in 1951 published his cousin Daphne du Maurier's work about their grandfather, illustrator and writer George du Maurier, The Young George du Maurier: a selection of his letters 1860-67.

He married Margaret Leslie Hore-Ruthven, youngest daughter of Maj-Gen Walter Hore-Ruthven, in 1931, and had three sons with her: Ruthven (1933-1998), George (b. 1935) and Peter (1940-1989).

He grew to dislike having his name associated with Peter Pan, which he called "that terrible masterpiece". Upon Barrie's death in 1937, most of his estate and fortune went to his secretary Cynthia Asquith, and the copyright to the Peter Pan works had previously been given in 1929 to Great Ormond Street Hospital for Children in London. Although Davies (and his surviving brothers) received a legacy,[9] some have speculated that this drove Davies to drink — he eventually became an alcoholic. Davies's son Ruthven later told an interviewer: