Davey was promoted to corporal on 24 April 1918, and that night the 10th Battalion conducted an operation near Méteren. The following month he was detached to Tidworth in England as an instructor, but returned to his unit at his own request on 23 June. Five days later, he was with his battalion during a "peaceful penetration" operation near Merris. Over the previous 18 months, the 10th Battalion had developed raising and patrolling skills that were critical in this type of more open warfare. The 10th's commanding officer, Lieutenant Colonel Maurice Wilder-Neligan, initially ordered a platoon to secure a position around a hedge. As this was successful, and another platoon achieved similar success, he then committed two companies to the operation, covered by a smoke screen and trench mortar fire. One platoon reached the hedge, and began to dig in, when a nearby machine gun opened fire, killing the platoon commander, causing other casualties and scattering the platoon. Davey then went forward alone twice, and using hand grenades, killed the crew and captured the machine gun. He then turned it on a German counter-attack, which was repelled.
Davey's actions in single-handedly eliminating a German machine gun post resulted in the award of the Victoria Cross (VC), the highest award for gallantry in battle that could be awarded to a member of the Australian armed forces at the time. He was initially recommended for the Distinguished Conduct Medal, but when the recommendation reached the commander of XV Corps, Lieutenant General Henry de Beauvoir De Lisle, he upgraded it to a recommendation for the VC and noted, "[a] most gallant and self-sacrificing action". The citation read:
For most conspicuous bravery and initiative in attack. In a daylight operation against the enemy position, his platoon advanced 200 yards, capturing part of the enemy line, and while the platoon was consolidating, the enemy pushed a machine gun forward under cover of a hedge and opened fire from close range, inflicting heavy casualties and hampering work. Alone, Corporal Davey moved forward in the face of a fierce point-blank fire, and attacked the gun with hand grenades, putting half of the crew out of action. Having used all the available grenades he returned to the original jumping-off trench, secured a further supply, and again attacked the gun, the crew of which had in the meantime been reinforced. He killed the crew, eight in all, and captured the gun. This very gallant NCO then mounted the gun in the new post, and used it in repelling a determined counterattack, during which he was severely wounded. By his determination, Corporal Davey saved the platoon from annihilation, and made it possible to consolidate and hold a position of vital importance to the success of the whole operation.
Davey's platoon was soon relieved by a reserve platoon that re-established the post. The 10th Battalion operation had seized 500 yards (460 m) of the German front line, along with thirty-five prisoners, six machine guns and two Minenwerfer trench mortars, for the loss of fifty casualties. Davey had sustained wounds to his back, abdomen and legs, and was evacuated to England. After he had recovered sufficiently he received his Victoria Cross at Buckingham Palace on 12 September. On this occasion, Wilder-Neligan wrote a note to Davey which said:
I wish to offer my congratulations to you upon receiving the highest military honour which can be bestowed upon a soldier of Britain. Your career in the 10th has been marked throughout by keenness and efficiency to an unusually high degree. The especially fine work which secured the VC to you was only the culmination of a series of acts of coolness and bravery for which you have been noted in the past.