Mario Andretti entered qualifying as the favorite for the pole position, having turned the fastest practice lap in Indy history at over 168 mph. On pole day (Saturday May 13), Joe Leonard initially took the provisional pole at 166.098 mph before Dan Gurney broke that mark at 167.224 mph. Andretti then set new single-lap (169.779 mph) and four-lap records to take the pole with an average of 168.982 mph — his second consecutive Indy pole. Gordon Johncock qualified third with A.J. Foyt fourth after mechanical trouble on his first attempt. Parnelli Jones qualified sixth in the Granatelli Turbine, doing so on a full race-day setup rather than the lightened qualifying configurations used by the piston-powered cars.
Graham Hill and Jackie Stewart were bumped from the field on the third day of time trials but successfully returned on bump day.
The race started on Tuesday May 30 under threatening skies. Jones swept from sixth on the grid to pass four cars in the first turn and led from the start. His pace was emphatic: he ran the first lap at a record 154 mph and built a substantial advantage early. On lap 18, rain fell and the yellow light came on; on lap 19, the red flag halted the race. Officials postponed the resumption until the following morning. Scoring reverted to the completion of lap 18, with all cars eligible to return except Lloyd Ruby, who had already retired to the garage with broken valves.
Wednesday dawned cool but sunny and the race resumed at 10:00 a.m. Ruby took over George Snider's car in relief for the second day. Jones continued to dominate, building a lead measured in portions of a lap as the race progressed. A.J. Foyt, Dan Gurney, and Al Unser chased him through the first half. On lap 80, Jones narrowly avoided disaster when a fuel hose jerked free as he pulled away from a pit stop, spilling fuel but causing no fire.
The mid-race period saw a cascade of incidents — Art Pollard spun, Carl Williams and Bob Veith made contact, Wally Dallenbach crashed on the main straight, LeeRoy Yarbrough (who had already spun twice during the race), Lloyd Ruby, and Johnny Rutherford all retired in quick succession under a single caution period.
Dan Gurney dropped out on lap 160. With roughly seven laps remaining, Jones held a lead approaching a full lap over second-place Foyt. Then, shockingly, a $6 transmission bearing failed and the turbine coasted silently to a stop near pit lane entrance with four laps remaining.
Foyt inherited the lead but the drama was not finished. On the final lap, a four-car crash erupted at the north end of the main straight. Foyt had subconsciously noticed the grandstand crowd looking down the straight rather than at him, backed off instinctively, and picked his way through the wreckage to take the checkered flag. His winning speed of 151.207 mph (243.344 km/h) set a new race record. Al Unser finished second — the first of three runner-up finishes he would record at Indianapolis.
Foyt's win was the first Indianapolis 500 victory for Goodyear tires since 1919. Goodyear had returned to Indy in 1964, and in 1967 snapped Firestone's streak of 43 consecutive race wins.
The race featured six drivers who were either former or eventual Formula One World Champions: Mario Andretti, Jim Clark, Graham Hill, Denis Hulme, Jochen Rindt, and Jackie Stewart. Rindt, after a difficult month and a difficult race, declared he had little interest in returning — though he did compete one more time at Indianapolis in 1968.
Cale Yarborough became the first driver to compete in both the NASCAR World 600 at Charlotte and the Indianapolis 500 in the same calendar weekend.
The STP-Paxton Turbocar's failure prompted immediate controversy. USAC moved quickly to restrict turbine entries further for 1968, and by 1969 the regulations effectively rendered them uncompetitive. The 1967 race remains the closest a gas turbine machine has come to winning the Indianapolis 500.