Niki Lauda, the Austrian reigning World Champion, was still hospitalised following his severe crash at the German Grand Prix on 1 August. The accident had shaken the entire sport, and its effect on the Austrian event was compounding. Ferrari, led by Enzo Ferrari, chose not to send cars to the Österreichring in protest against the FIA's reinstatement of James Hunt as the winner of the Spanish Grand Prix — a decision that had gone against the Scuderia's interpretation of the regulations. The Austrian race became, as of 2025, the last World Championship round in which Ferrari did not enter, completing a record that had otherwise held since the championship's earliest seasons.
Two local drivers had applied to compete. Otto Stuppacher, with a Tyrrell 007, and Karl Oppitzhauser, with a March 761, both sought entry under the ÖASC Racing Team banner. Both were refused on grounds of insufficient experience, received no support from established teams, and did not participate. The Austrian public, deprived of both its home champion and the Ferraris he drove, largely stayed away.
James Hunt took pole position in his McLaren-Ford on the wet-drying surface. Watson launched immediately into the lead from second on the grid. Ronnie Peterson took over at the front on lap 2 but Watson reclaimed the position on lap 11 at the Texaco-Schikane and led for the remainder of the race. Behind Watson, Gunnar Nilsson moved into second from Peterson on lap 19, while Jacques Laffite took third from Peterson on lap 29. Hunt, driving a McLaren that was performing below expectations, came through to fourth.
Carlos Pace's Brabham had been fitted with experimental carbon-composite brake discs derived from Concorde research. On lap 41 one disc suffered thermal failure; Pace spun at approximately 300 km/h into a catch fence and emerged unhurt. The incident ended the experiment with carbon brakes for the time being.
At the finish: Watson first in 1 hour 30 minutes 7.860 seconds, Laffite second at 10.790 seconds, Nilsson third, Hunt fourth, Mario Andretti fifth, and Peterson sixth — Peterson's first championship point of the season. The fastest lap was set by Hunt at 1:35.910.
The Penske victory came exactly one year after the death of Mark Donohue, the team's former driver who had sustained fatal head injuries after crashing at the Österreichring during the 1975 Austrian Grand Prix. Watson had joined Penske for the 1976 season and carried the team to the result that Donohue's career had never reached in Formula One. The win also represented, as of 2025, the last occasion on which a United States-licensed constructor won a Formula One World Championship race — a record that dates the American constructor's final moment of F1 supremacy to August 1976.
Roger Penske, who had entered Formula One with serious resources and ambition, withdrew from the World Championship at the end of the 1976 season to concentrate on Indycar racing, where the organisation continued to operate as one of the sport's most formidable teams.
Lella Lombardi, the Italian driver, qualified 24th in a RAM Racing-entered Brabham and finished 12th, four laps behind the leader. The result meant she had completed the race as a classified finisher. As of 2025, Lombardi's Austrian Grand Prix finish remains the last occasion on which a female driver both qualified for and finished a Formula One World Championship Grand Prix.
Hunt's fourth-place finish reduced his deficit to Lauda in the Drivers' Championship to eleven points — a significant reduction given that Lauda had been expected to miss several races following his accident. The Österreichring result shaped the championship run-in that culminated in Hunt's title at Fuji.