On December 17, 1927, the S-4 was conducting an exercise off the coast of Cape Cod when she collided with the USCG Cutter Paulding and sank. A handful of men survived the accident, only to be trapped in the forward torpedo room. Severe weather hampered all rescue and salvage attempts, and all 42 men aboard the S-4 were lost.

On March 17, 1928, the S-4 was finally raised. She was completely overhauled and converted into a training sub. She was fitted with stronger bulkheads, new engines, and quick-acting, watertight doors. In addition, numerous experimental rescue devices were installed and/or tested in the S-4, including the Momsen Lung, the McCann rescue diving bell, and telephone buoys which would allow trapped crew to communicate with the surface. The S-4 was subsequently used to train crews how to operate these devices properly and efficently.