A mixed wet-dry qualifying session produced a grid that few had predicted. Giancarlo Fisichella secured the first and last pole position of his career for Benetton, with Jean Alesi of Sauber alongside him on the front row. It proved to be Benetton's final pole position in Formula One. Häkkinen and Coulthard qualified seventh and fourteenth respectively, leaving the McLarens buried in the midfield.
Häkkinen made an excellent start from seventh and led into the first corner. Behind him, a chain of incidents disrupted the early running. Toranosuke Takagi was left stranded on track, and Olivier Panis stalled on the grid with clutch failure. At the second corner, the two Arrows cars — driven by Mika Salo and Pedro Diniz — collided and struck Coulthard, damaging his front wing. Coulthard pitted immediately for a replacement nose and rejoined at the back of the field. A safety car was deployed to clear debris, which had the inadvertent effect of compressing the field and allowing Coulthard to catch the tail of the pack quickly.
After the restart Häkkinen led comfortably, with Schumacher giving chase. Schumacher attempted to overtake Häkkinen but ran wide at the exit of a corner, momentarily dropping behind Fisichella and almost Rubens Barrichello's Stewart. Barrichello retired shortly after with brake problems. Schumacher re-passed Fisichella but then suffered a more serious incident — going far off the road and ripping off his front wing against the gravel trap — forcing an unscheduled pit stop for a replacement and leaving him almost a full lap adrift. Around the same time, Heinz-Harald Frentzen's Williams suffered a sudden engine failure that caught fire; Frentzen escaped unharmed.
On lap 21 the front-running battle among the non-McLarens ended when Fisichella and Alesi clashed at the second corner and both retired. From that point Häkkinen led without serious challenge. Coulthard, who had started last effectively after his damaged-front-wing pit stop, charged through the field to reach second place. Schumacher, on a two-stop strategy, also recovered from his gravel excursion to finish third, with Eddie Irvine — his Ferrari team-mate — dropping to fourth. Irvine acknowledged after the race that his brakes were deteriorating, and suggestions circulated that the team had signalled him to yield position to Schumacher, though Ferrari did not confirm a team order.
Häkkinen's victory extended his lead in the Drivers' Championship, as the 1998 season was developing into a tightly fought contest between him and Schumacher. Coulthard's recovery drive from the back of the field to second was one of the most striking performances of the season.
The A1-Ring, which replaced the original Österreichring on a shorter layout measuring 4.326 km, hosted the Austrian Grand Prix from 1997 until 2003. The circuit sits at Spielberg in the Styrian hills and later became the Red Bull Ring under new ownership.