In July 2007, Senator Tom Coburn criticized earmarks that Nelson had inserted into the 2007 defense spending bill, alleging that they would benefit Nelson's son Patrick's employer with millions in federal dollars, and that the situation violated terms of the Federal Funding Accountability and Transparency Act of 2006, which the Senate passed but had not yet been voted on in the House. Nelson's spokesperson said he did nothing wrong and was acting with "an abundance of caution" when he withdrew the amendment after the new Senate Ethics Rules were passed. Some government watchdogs, including Public Citizen, commented that the earmark probably didn't violate ethics rules. More than one publication questioned Coburn's motives, as his criticism did not include his own state delegation's earmark requests.
On March 15, 2007, Nelson was one of two Democratic senators to vote against invoking cloture on a resolution aimed at withdrawing most American combat troops from Iraq in 2008. The vote, requiring 60 votes to pass, was 50 to 48 against.
As a result of traveling to Iraq four times, the last in September 2007, Nelson took the position that a transition of the mission in Iraq was necessary, as opposed to full withdrawal of troops. The Jones Commission supported his view on September 6, 2007, when General James L. Jones presented a report to Congress claiming that "The circumstances of the moment may continue to present the opportunity for considering a shift in the disposition and employment of our forces... such a strategy would include placing increasing responsibilities for the internal security of the nation on the ISF, especially in urban areas. Coalition forces could be re-tasked to better ensure the territorial defense of the state by increasingly concentrating on the eastern and western borders and the active defense of the critical infrastructures essential to Iraq." The premise that stability in Iraq would only be achieved through political reconciliation acted on through legislation, a view long held by Nelson, was also recommended by Jones, reporting, "The future of Iraq… hinges on the ability of the Iraqi people and the government to begin the process of achieving national reconciliation and to ending sectarian violence."
Nelson and Collins also introduced legislation on July 11, 2007, that would transition U.S. troops out of Baghdad. The legislation called for turning over internal security efforts to Iraqi forces after which the U.S. military would secure the borders, protect the infrastructure, and continue to search for al-Qaeda forces.