Walters appeared 234 times and scored 48 goals in the 5 years he spent at his boyhood favourites before an offer of £550,000 from Scottish side Rangers tempted Walters into a move north of the border.
After taking over the manager's position at Anfield, Graeme Souness went back to his old club Rangers to snap up winger Mark Walters for £1.3 million in the summer of 1991. Walters had made a big impression in Scotland but was eager for a move back to the top flight in England and Liverpool represented a marvellous opportunity for him to show off his talents.
He made his debut four days after signing when he came on as a 65th minute substitute for Steve McMahon in a 2–1 league win over Oldham Athletic at Anfield on 17 August 1991. His first goal for the club was an 88th minute penalty in a 2–1 league win over Notts County at Meadow Lane on 7 September 1991.
Souness had brought Walters back to England hoping that he would terrorize first Division defences as he had done in Scotland. However, this failed to materialize with the kind of performances he'd produced at Rangers coming too infrequently in a red shirt, although he certainly had his moments and is remembered fondly by many.
His finest hour came during a match against Auxerre at Anfield in the Uefa Cup. Liverpool trailed 2-0 from the away leg but won their home match 3-0 with Walters netting a late winner after tormenting the French defence all night long.
He remained a regular in the side and helped Liverpool to the 1992 FA Cup Final, although he was an unused substitute as his team-mates beat 2nd Division Sunderland 2–0.
Walters was Liverpool's first ever Premiership goalscorer when he equalized in a 2-1 win over Sheffield United in August 1992. That same season he was also the first Liverpool player to score a Premiership hat-trick in a 4-0 win over Coventry City.
When Liverpool beat Bolton Wanderers 2–1 in the 1995 Coca-Cola Cup final, he was again an unused substitute. Walters was being used less and less as Roy Evans was now operating with a 3-5-2 formation with Rob Jones and Stig Inge Bjørnebye as wing-backs. Walters didn't fit into that system and found himself out in the cold.
He had already been sent out on loan to Stoke City (9 games, 2 goals) and Wolverhampton Wanderers (11 games, 3 goals) during the 1993–94 and 1994–95 seasons, and thus it was not surprising that, after not appearing at all during the first half of the 1995–96 season Walters was allowed to leave, joining Southampton on 18 January 1996.