Entering the race, three drivers were in contention for the World Championship. Nigel Mansell, driving a Williams-Honda, led with 70 points. Reigning champion Alain Prost, in a McLaren-TAG, was second on 64 points, and Mansell's teammate Nelson Piquet was third on 63 points. The Williams-Honda proved superior in speed to the McLaren-TAG, with Mansell and Piquet having won nine of the previous fifteen races between them. The Williams team had already secured the Constructors' Championship at the Portuguese Grand Prix in late September. However, Mansell and Piquet had often battled each other, taking points from one another, while Prost's consistent performances allowed him to remain in contention.
Mansell had failed to secure the Drivers' Championship prematurely at the preceding Mexican Grand Prix. He entered the Australian Grand Prix in the strongest position, needing only a third-place finish to win the championship. His rivals, Prost and Piquet, both needed to win the race to keep their title hopes alive. This was the first time in two years that the championship was decided at the final round, and the first time since 1983 that three drivers were still in contention for the Drivers' Championship at the season finale. Mansell had the opportunity to become Britain's first World Drivers' Champion since James Hunt in 1976. If Prost won, he would successfully defend his title. Piquet had the chance to win his third world championship, which would make him Brazil's most successful Formula One driver by the number of Drivers' Championships, as he was tied with Emerson Fittipaldi, who won titles in 1972 and 1974.
Qualifying saw Mansell take pole position, 0.3 seconds ahead of teammate Piquet. Ayrton Senna was third in his Lotus, a further 0.2 seconds back. Prost qualified fourth, 1.2 seconds behind Mansell. René Arnoux in the Ligier and Gerhard Berger in the Benetton completed the top six. Keke Rosberg in the second McLaren, Philippe Alliot in the second Ligier, Michele Alboreto in the Ferrari, and Philippe Streiff in the Tyrrell rounded out the top ten. Andrea de Cesaris achieved the Minardi team's best grid position to that point, qualifying eleventh.
Friday's qualifying session was interrupted by a sudden downpour, which led to separate accidents for Patrick Tambay (Haas Lola) and Stefan Johansson (Ferrari). Both drivers slid off the track and hit an unprotected concrete wall. The wall, not previously considered problematic, had two rows of tires added for protection by Saturday morning. Both drivers were uninjured beyond general soreness and bruising.
During morning practice, Prost was the fastest with a 1:19.121, four seconds inside the lap record and faster than Mansell's Friday qualifying time. However, neither Prost nor his teammate Rosberg could match their morning times in the afternoon session, reporting a lack of grip. The session was further impacted when Streiff's Renault engine blew up, coating the racing line with oil and effectively ruining the final 20 minutes of qualifying.
Home country hero Alan Jones, in his final Formula One drive, qualified 15th in his Lola, ahead of teammate Tambay who qualified 17th. Both Lolas, using a revised Ford engine, were over 4.3 seconds slower than Mansell's pole time. The Australian Grand Prix also featured onboard cameras on Tambay's Lola and Johnny Dumfries' Lotus for television broadcast. Martin Brundle's Tyrrell-Renault was timed at 205 mph (330 km/h) on the 900-meter Brabham Straight during qualifying, a speed that would remain the fastest ever recorded on the Adelaide Street Circuit due to future FISA turbo boost restrictions and the eventual switch to naturally aspirated engines.
A capacity crowd of 150,000 attended the Adelaide circuit, drawn by the prospect of a three-way battle for the Drivers' Championship. Mansell, starting from pole, yielded the lead to Senna's Lotus at the second corner on lap 1 and also fell behind Piquet and Rosberg on the same lap. Piquet then overtook Senna on lap 1 to take the lead, but his lead lasted only six laps. On lap 7, Rosberg took the lead from Piquet and began to build a significant gap.
On lap 23, Piquet spun, but his car sustained no damage, and he continued the race after dropping several places. Prost suffered a puncture a few laps later, dropping him to fourth position after a pit stop. Piquet charged back through the field, passing Mansell for second place on lap 44. With 25 laps remaining, all three championship contenders were running together in positions 2, 3, and 4.
The battle for the lead intensified on lap 63 when Rosberg suffered a right-rear tire failure and retired from the race. Rosberg later stated that he had promised Prost and the team that he would give way to his teammate to aid Prost's bid for back-to-back championships. Prost had just passed Mansell for third, which became second when Rosberg retired, with Piquet now leading. At this point, Mansell only needed a third-place finish to secure the championship.
However, on lap 64, Mansell's left-rear tire exploded at 290 km/h (180 mph) on the Brabham Straight while he was lapping Alliot's Ligier. The incident sent sparks flying and severely damaged his left-rear suspension. The Williams coasted to a stop in the run-off area, with Mansell avoiding any impact. Fearing a similar failure on Piquet's car, Williams called Piquet into the pits for a precautionary tire change, which handed the lead to Prost. Piquet made a late charge, closing the gap from 15.484 seconds with two laps remaining to just 4.205 seconds at the finish. Prost claimed both the race victory and the World Championship. Prost's car had so little fuel left that he pulled up only meters past the finish line.
Stefan Johansson, in his last race for Ferrari, completed the podium in third place, a lap down on Prost and Piquet. Martin Brundle ran out of fuel as he crossed the line in fourth place in his Tyrrell. His teammate Streiff was classified fifth, two laps down, and Dumfries took the final point in his Lotus.
By winning, Prost became the first and only driver to win the Australian Grand Prix in both non-championship and World Championship forms, having won the non-championship 1982 Australian Grand Prix for Formula Pacific cars at Calder Park Raceway in Melbourne. This race also marked the last for the Renault turbo engine, which had pioneered Formula One turbocharging in 1977, and Renault's last F1 race as an engine supplier until their return with Williams in 1989. It was also the final F1 race for two former World Champions, 1980 champion Alan Jones and 1982 champion Keke Rosberg, as well as for Patrick Tambay, Johnny Dumfries, Allen Berg, Huub Rothengatter, and Team Haas, for whom both Jones and Tambay drove.
Drivers' Championship
Alain Prost (72 points)
Nigel Mansell (70 points)
Nelson Piquet (69 points)
Ayrton Senna (55 points)
Keke Rosberg (22 points)
Constructors' Championship
Williams-Honda (141 points)
McLaren-TAG (96 points)
Lotus-Renault (58 points)
Ferrari (37 points)
Ligier-Renault (29 points)