The entry was the same as it had been in Hockenheim (where Williams scored a 1-2 finish) but there had been a change at Tyrrell with Derek Daly being brought in to stand-in for the unwell Jean-Pierre Jarier (who had been replaced by Geoff Lees at Hockenheim). ATS had undergone a restructuring with former Grand Prix driver Vic Elford becoming team manager and the team had the brand new D2, which had been designed by Nigel Stroud.

As Austria is high up in the Austrian mountains, the Renault turbo had an advantage and René Arnoux was on pole position with Alan Jones second. Then came Jean-Pierre Jabouille (Renault) and Niki Lauda in the fastest of the two Brabham-Alfa Romeos. The third row featured Gilles Villeneuve (Ferrari) and Clay Regazzoni (Williams) and the top 10 was completed by Nelson Piquet (Brabham-Alfa Romeo), Jacques Laffite (Ligier), Jody Scheckter (Ferrari) and Didier Pironi (Tyrrell).

Villeneuve made an amazing start to take the lead from Jones, Lauda and Arnoux. Jabouille lost his clutch at the start and dropped to ninth but quickly caught up. Villeneuve stayed ahead until the third lap when Jones breezed ahead, while Arnoux quickly dispensed with Lauda. On lap 11 Arnoux moved to second place but he was then overtaken by Jabouille. The Renault team leader lasted only a couple of laps before the clutch finally stopped him and so Arnoux settled into second place with Villeneuve third, Scheckter fourth, Regazzoni fifth and Laffite sixth. Laffite soon moved ahead of Regazzoni and the order then stayed unchanged up front until the closing laps when Arnoux began to have fuel pickup problems in the final laps and had to pit. He dropped to sixth place. On the last lap Laffite overtook Scheckter to grab third place behind Jones and Villeneuve. Scheckter added to his World Championship total with fourth place and the final points went to Regazzoni and Arnoux.