The race started at 2:00 pm local. Ronnie Peterson led into the first corner, with Carlos Reutemann snatching second from Mario Andretti. Andretti tried to get the place back later in the lap, but the two collided and Andretti retired after his car spun into the barriers. On the third lap, Jody Scheckter slid off and crashed into Andretti's abandoned Lotus, damaging both cars. The surprise in qualifying was Jean-Pierre Jabouille who qualified his turbocharged Renault third.
On the fourth lap, a heavy rainshower hit the track and Reutemann spun off and was beached but the marshals push-started his car as it was in a dangerous position, while Nelson Piquet and Héctor Rebaque crashed out. At the end of lap six, Gilles Villeneuve headed for the pits for rain tyres having executed a monumental spin, and next lap Jabouille lost control of the Renault, managed to gather it all up and also stopped for rain tyres, while Emerson Fittipaldi was into the pits and Pironi spun off and knocked the nose cone off his Tyrrell but rejoined. Peterson finished lap seven in full control of the situation and when the last car had gone through the officials decided to stop the race. The race was stopped and it was clearly stated that the Grand Prix would now be considered a two-part race, the first part having run for seven laps and the starting grid for the 47-lap second part would be in the order in which the competitors completed lap seven. Only those cars that arrived back at the pits under their own power would be allowed to start in the second part. Peterson and Reutemann drove their cars back, having been extricated from the grass verges. Patrese's Arrows was towed in with the nose cone damage, and should have been wheeled away along with Rebaque's Lotus but in the confusion the Arrows team started repairing it. With Peterson on pole position and Reutemann in last position, having spun off on lap 5, it was a delicate situation, but was resolved by allowing them both to restart, though Reutemann would be considered to be two laps behind at the start of the second race.
The race restarted at 3:15 pm after the rain relented, and once again Peterson led followed by Patrick Depailler and Niki Lauda. As the track began to dry, Peterson started to pull away, and behind, Reutemann was on a charge and passed Lauda for third but he was black-flagged for receiving outside assistance, and Lauda crashed out soon after, leaving Gilles Villeneuve third. The drivers changed to slicks but the top 3 remained the same and stayed so till the end; Peterson winning ahead of Depailler, with Villeneuve taking his first ever podium.
This was the 10th fastest lap and 1st Grand Slam set by a Swedish driver. This was the 1st podium finish for a Canadian driver. This was the 3rd win of the Austrian Grand Prix for Lotus. It broke the previous record set by Ferrari at the 1970 Austrian Grand Prix. This was the 100th fastest lap set by a Ford-powered car. Since the inaugural 1964 Austrian Grand Prix, there were nine different winners.