Just going to add info here with a forum reply from Bearman on AuLRo in 2014. I have embellished his post (a lot) with part numbers etc for Newb owners.
CDL FAILS TO UNLOCK
AuLRO forum 2014
** Definitely not a good idea driving on road with CDL in the 'locked' (orange indicator light 'on') position - you are going to get a lot of transmission wind up and stress on driveline component$$$. CDL is for dirt/off road use only**
Work out where the problem is first and then go about parts replacement from there.
If the CDL selector switch (BYG2049) on the dash panel is faulty, that will stop the CDL unlocking. See RPS group "GE". With the engine running, pull off the middle vacuum hose that comes from the engine and put your finger over the end of it: there should be vacuum there. If none, check back along the vacuum hose in the engine bay for leaks. If there is a vacuum, put the middle hose back on the CDL switch...
...because the leak is between the CDL switch vacuum outputs and the inputs on the vacuum actuator down below, on the driver's side of the transfercase: See RPS group "FEA".
Pull the 2 vacuum hoses off the vacuum actuator (R571957). See actuator image below.
Sorting the 2 hoses on the actuator: if the dash panel CDL switch is in ('off' position) there should be vacuum at the vacuum actuator rear hose, and at the front vacuum actuator hose if the CDl switch is in the 'on' position. You should be able to work out where the problem is from checking this.
If you can feel vacuum on both hoses at the actuator inputs, and it is not unlocking, it is most likely that the vacuum actuator diaphragm is perished/leaking.
If there is vacuum to the dash panel CDL control switch, but none at the 2 hoses that go to the actuator below, the CDL switch is faulty.
If the CDL control fails to 'unlock' or turn 'off' after driving offroad, how do you get around the problem temporarily, to get out of the bush? To 'unlock' the CDL you either have to unbolt the Actuator unit from the side of the transfer (drain the transfer case oil first), and manually unlock the dog, and then you pull the fork back on the unit, and then bolt it back on until you can replace it, or...
...another way is to drill a 1/2 inch hole into the side of the front part of the vacuum unit and insert a screwdriver to move the piston back towards the rear and disengage it. If there is oil in there it usually means the O ring (R571991) that seals the piston shaft is u/s and that is probably what caused the failure of the diaphragm. You will then have to seal the hole before you refill the oil.
Cheers......Bearman