In mid-1987, the PAF decided to induct the Chinese F-7P aircraft into its fleet, to replace the veteran F-6s. Seven pilots proceeded to China for initial conversion on F-7P aircraft, on 8 Mat 1988. On 20 June 1988, Wing Commander Ghazanfar took-off in the first F-7P aircraft and was followed by Squadron Leader Asif in the second aircraft. Following the ferry of F-7P aircraft from China to Pakistan, 20 Squadron became the first squadron to operate these aircraft. On 12 August 1988, seven pilots along with ground crew and the Project Zodiac team, proceeded to Hotian in order to ferry an additional ten F-7P aircraft. The ferry was completed on 16 August 1988. On 31 August 1988, the DCAS (M) visited the squadron and inspected the maintenance facilities for F-7P aircraft. During the rest of the year, the squadron flew many mutual air combat missions and later, it flew missions against other aircraft like the A-5, the Mirage, and the F-16s, in order to develop tactics in dissimilar air combat.

On 7 February 1989, the squadron participated in the first operational exercise viz. Hit Hard-X. The CAS visited the squadron during the annual inspection if the Base on 14 February 1989. During the same month, the squadron took over the role of converting pilots on the F-7P aircraft. On 23 March 1989, four F-7P aircraft flew in the fly-past for the first time in the history of the PAF. In August 1989, four FT-7s were ferried from Hotian to Peshawar. On 18 August 1989, twelve fresh graduates of 1 FCU reported to the squadron for the first OCC on F-7P. The squadron participated in the Air Force Defence Day celebrations for the first time on 7 September 1989. No. 1 OCC graduated on 11 October 1989. The CAS visited the squadron on 3 November 1989 and flew its aircraft. During Exercise High Mark-89, the pilots of 18 Squadron as well as ten of its aircraft took part in the exercise as part of 20 Squadron.

On 7 February 1990, the re-equipment ceremony of the squadron took place. President Ghulam Ishaq Khan was the chief guest on this occasion. Twenty-four aircraft led by Group Captain Toor took part in the Pakistan Day fly-past in 23 March 1990. Twenty F-7Ps were ferried from Hotian to Peshawar and then to Raifiqui on 19 April 1990. In August 1991, three officers from Sri Lankan Air Force were attached to the squadron for conversion on F-7P. On 15 October 1991, the Chief of Air Staff of the Royal Air Force, Air Chief Marshal Sir Peter Harding, flew an FT-7 aircraft with Officer Commanding 20 Squadron, Wing Commander Adeeb.

During the rest of the period, the squadron participated in a number of routine exercises, including DACT camps held from time to time, High Mark exercises, Saffron Bandit, air-to-air firings, air defence exercises, and the armament competition, etc. When PAF decided to induct F-7Ps of Hand Shake-IV in June 1993, most of the pilots detailed to ferry them were from this squadron. On 14 July 1996, AVTR modification was started on all the aircraft of the squadron. A number of VIPs also visited the squadron during this period.