After completing his officer training and time on the training ship Niobe he served aboard the light cruiser Emden. In December 1934, he was transferred to the light cruiser Köln, then in January 1936 made the move to the fledgling U-boat service. His first operational posting was to the 2nd U-Flotilla's Type VII U35 where he survived almost being drowned during training in the Baltic Sea. During the Spanish Civil War, Kretschmer was involved in several patrols as part of the international non-intervention force.

He demonstrated a cool approach to combat: his mantra one torpedo for one ship proved that the best way for his boat to succeed against a convoy was to remain surfaced as much as possible, penetrating the convoy and using the boat's high speed and small silhouette to avoid retaliation.

His nickname Silent Otto referred to his ability to remain undetected and his reluctance to provide the regular radio reports required by Dönitz: he had guessed that the Allies had broken German codes. Alongside his military skill was a character that remained rooted in the traditions of the Prussian military.