Hill entered 1994 as Williams's de facto lead driver after Ayrton Senna joined him at the team. Pre-season betting favoured Senna for the title, but the Benetton team and Schumacher initially proved more competitive and won the first three races. After Senna's death, Hill represented Williams alone at the Monaco Grand Prix, where his race ended early in a multi-car collision on the opening lap. For the following Spanish Grand Prix, test driver David Coulthard was promoted to the race team alongside Hill, who won the race four weeks after Senna's death. By the midpoint of the season Schumacher led Hill in the standings by 66 points to 29, and at the French Grand Prix Frank Williams brought back Nigel Mansell for the French, European, Japanese and Australian rounds, with Coulthard contesting the majority of the year.
Hill came back into title contention by winning the British Grand Prix — a race his father Graham had never won. Schumacher was disqualified from that race and banned for two further events for overtaking Hill during the formation lap and ignoring the subsequent black flag. Four more victories for Hill, three of them in races where Schumacher was excluded or disqualified, took the title battle to the final round at Adelaide. At Schumacher's first race back from his ban, the European Grand Prix, the German publicly suggested that Hill — eight years his senior — was not a world-class driver. At the penultimate Japanese Grand Prix, however, Hill took victory ahead of Schumacher in a rain-soaked event, putting him just one point behind the German going into the season finale. Hill later said his driving in Japan had been "on a different level from how I'd ever driven before".
Neither Hill nor Schumacher finished the season-closing Australian Grand Prix at Adelaide, after a controversial collision that gave Schumacher the title by one point. Schumacher ran off the track and hit the wall with the right-hand side of his Benetton while leading. Coming into the sixth corner, Hill moved to pass the damaged Benetton; the two collided, breaking the Williams's front-left suspension wishbone and forcing both drivers' retirement from the race. BBC Formula One commentator Murray Walker maintained at the time that Schumacher had not caused the crash intentionally, but Williams co-owner Patrick Head took a different view. In 2006 Head said that at the time of the incident "Williams were already 100% certain that Michael was guilty of foul play", but did not protest Schumacher's title because the team was still dealing with the death of Ayrton Senna. In 2007, Hill explicitly accused Schumacher of having caused the collision deliberately. Hill's runner-up season nonetheless earned him the 1994 BBC Sports Personality of the Year.
Hill came into 1995 as one of the title favourites. Williams were the reigning Constructors' Champions, having beaten Benetton in 1994, and with the rookie Coulthard alongside him for his first full season Hill was the clear number one driver. The year began promisingly with pole position in Brazil, although a spin while in the lead due to a mechanical problem handed the lead to Schumacher. Wins in the next two races put Hill in the championship lead, but Schumacher then won seven of the next twelve races to take his second title with two races to spare, while Benetton claimed the Constructors' Championship.
Schumacher and Hill had several on-track incidents during 1995, two of which led to suspended one-race bans for both drivers. Schumacher's penalty was for blocking and forcing Hill off the road at the Belgian Grand Prix; Hill's was for colliding with Schumacher under braking at the Italian Grand Prix. Hill's season finished positively when he won the Australian Grand Prix by finishing two laps ahead of runner-up Olivier Panis in a Ligier.
The rivalry continued in altered form after Schumacher's move to Ferrari and Hill's departure from Williams to Arrows and then Jordan. At the 1998 Canadian Grand Prix, Schumacher — delayed by a stop-and-go penalty after forcing Heinz-Harald Frentzen's Williams off the track — caught Hill on the home straight; Hill moved across the track to block Schumacher, who took the place by running over the kerbs at the last chicane. After the race Schumacher accused Hill of dangerous driving. Hill responded by saying that Schumacher "cannot claim anyone drives badly when you look at the things he's been up to in his career."
Many years after retirement, Hill served on the stewards' panel at the 2010 Monaco Grand Prix that decided to penalise his former rival for overtaking under yellow-flag conditions.
The Schumacher–Hill rivalry framed the post-Senna transition of Formula One: Williams's gradual loss of the technical ascendancy that had carried Hill to title contention in 1994, Benetton's rise into a championship-winning team built around Schumacher, and the inheritance of the Williams advantage by Hill in 1996 — when he took the title and became the first son of a Formula One World Champion to win the championship himself — before Schumacher embarked on the Ferrari era that would yield his five later titles. The two seasons in which they fought directly for the championship produced the disputed Adelaide finale of 1994, the suspended one-race bans of 1995, and one of the most enduring on-track antagonisms of the decade.