Buenos Aires was not a popular venue with the drivers. The circuit was slow and twisty, with short point-and-squirt straights that offered few overtaking opportunities, and the surface was in particularly poor condition — damaged by a local contractor operating a JCB after a recent sportscar race. In practice, several cars were badly damaged by bumps on the back straight; Johnny Herbert's fire extinguisher was dislodged and accidentally discharged by the impact.
Damon Hill, already carrying an early championship lead, arrived having been struck down by food poisoning in the days before qualifying. He nonetheless went faster than Michael Schumacher in the second session to take pole by 0.25 seconds, denying the Ferrari driver what would have been a first pole position for the Scuderia. Behind the front row, Jacques Villeneuve and Jean Alesi lined up on the second row, followed by Gerhard Berger and Rubens Barrichello. For the first time in 1996 every entrant qualified within 107 percent of pole — Montermini's Forti made it by just two hundredths.
Hill and Schumacher both made strong starts. Villeneuve, still adapting to the Williams hand clutch, bogged down and fell to ninth, leaving Alesi and Berger immediately behind the Ferrari. Villeneuve quickly began working back through the field, taking three places in the first seven laps and setting the race's fastest lap on lap 11 before passing Coulthard for fifth on the following lap.
The first pitstops cycled through the top positions from lap 20 onward. Häkkinen had retired with a jammed throttle, the first of the leaders to leave. Schumacher stopped first among the frontrunners, rejoining just ahead of Villeneuve. Alesi made a rapid five-second stop, returning to traffic just inches ahead of Schumacher. Hill pitted on lap 24 and emerged still in the lead, with Schumacher second, Alesi third and Villeneuve fourth.
On lap 25 a collision between Pedro Diniz and Luca Badoer sent Badoer's Forti inverted into the gravel trap. The Italian extricated himself with minimal assistance from the marshals, who had been confused by a delay in the safety car collecting the race leader. Diniz continued, and as he made his way back round to rejoin the safety car queue his Ligier suddenly caught fire. A safety valve had stuck open during refuelling; the backwash deposited fuel onto hot engine components. Diniz parked rapidly and escaped with only a burn on his hand. The safety car remained deployed for three additional laps while marshals cleared the debris and fuel from the circuit.
When racing resumed, the field was tightly bunched. Villeneuve now found himself directly behind Berger, whom he had been chasing before the interruption. Hill steadily rebuilt his advantage over Schumacher. At lap 40 Schumacher pitted for the second time, stationary for 12.6 seconds, rejoining in eighth. Alesi set a lap record of his own before his second stop, only to stall on exit and rejoin behind Schumacher. He quickly sensed the Ferrari slowing and passed it; Barrichello followed. Schumacher coasted to the pits: a piece of debris from the Marques-Brundle collision had struck his rear wing.
On lap 57 Berger returned to the pits, believing he had a puncture in the left rear. His suspension had in fact been destroyed by the back-straight bumps. He rejoined but was unable to continue, ending any chance of a Benetton podium. Williams now had a comfortable one-two in prospect. Alesi closed relentlessly but could not prevent it, eventually crossing the line third — his second podium in three races, all with Renault power. Barrichello took fourth, Irvine fifth for Ferrari and Verstappen sixth for the TWR Footwork squad. Both Alesi and Irvine stopped on the slowing-down lap, having run out of fuel.
Hill's victory was his sixteenth in Formula One and his fourth in succession, making him only the tenth driver in history to achieve that sequence. In the Drivers' Championship he led with 30 points, well ahead of Villeneuve on 12 and Alesi on 10. In the Constructors' Championship Williams had already accumulated 42 points, with Benetton-Renault second on 13 and Ferrari third on 10.