The 53-lap race was won by Frenchman Jacques Laffite, driving a Ligier-Matra. Compatriot René Arnoux finished second in a Renault, having started from pole position, with Brazilian Nelson Piquet third in a Brabham-Ford. Piquet moved to within six points of Drivers' Championship leader, Argentine Carlos Reutemann, who finished fifth in his Williams-Ford.
In qualifying, just like the previous year, it was an all-French front row; René Arnoux planted his turbocharged Renault on pole, alongside his teammate Alain Prost. Next was Gilles Villeneuve in his turbocharged Ferrari, Jacques Laffite in the Ligier, Carlos Reutemann and Alan Jones in the Williams cars were 5th and 6th, then Nelson Piquet in a Brabham and then Didier Pironi in the other turbocharged Ferrari.
The Fittipaldi team was not present because they did not have enough engines.
At the start, Villeneuve got the jump on the two Renaults and led into the Hella-Licht chicane. On the next lap, Prost passed Villeneuve into the Hella-Licht; Villeneuve tried to outbrake Prost but he locked up solid and went into some runoff area; as did Reutemann. Both the Canadian and Argentine drivers were able to rejoin, but with time lost.
At the high-speed Österreichring, a power advantage paid dividends. Prost and Arnoux were able to pull away from the rest of the field. Around lap 4, Pironi (who had made a lightning start from 8th on the grid) was running 3rd, and Laffite, Piquet, Jones and eventually Reutemann had caught up to Pironi. None of them could find a way past, and were held up by Pironi for a number of laps. In a similar situation to the Spanish Grand Prix earlier in the year, the Ferrari had more power than any of the cars behind it did, but its handling was way worse; so they were able to stay with the Ferrari. The 5 drivers battled it out, with Piquet, Laffite, Jones and Reutemann keeping with and desperately trying to find a way past Pironi, but not being able to because of the Ferrari's power pulling away on the straights; made more difficult by the fact that the scenic Österreichring was made up almost entirely of long corners and straights.