On the weekend between the German and Austrian GPs, Manfred Winkelhock was killed driving a Porsche in a sportscar race at Mosport Park. The RAM team decided to run Kenny Acheson in his place. Toleman had expanded to two cars with Piercarlo Ghinzani as expected joining Teo Fabi. The field was otherwise unchanged. In the paddock there was lots of gossip as Niki Lauda announced that he would be retiring at the end of the season. Keke Rosberg had signed to replace him at McLaren while Nelson Piquet announced that he was leaving Brabham to take Rosberg's place at Williams. Elio de Angelis was moving from Team Lotus to take the empty Brabham seat. Renault was rumored to be withdrawing and Patrick Tambay was expected to go to the new Beatrice team while Derek Warwick was negotiating to join Ayrton Senna at Team Lotus.

In qualifying Alain Prost was on pole in his McLaren-TAG with Nigel Mansell alongside in his Williams-Honda. Then came Lauda and Rosberg with Piquet fifth, Teo Fabi sixth and de Angelis seventh. The top 10 was completed by Tambay, Alboreto and Riccardo Patrese (Alfa Romeo).

Lauda snatched the lead but before the end of the lap there were red flags. Mansell had been slow away and Fabi had not moved at all and there was chaos behind with Alboreto, de Angelis, Gerhard Berger (Arrows-BMW) and Fabi all involved. Once this was sorted out the race restarted. Prost (in his spare) took the lead from Rosberg but on the fourth lap Keke's Williams went out with an engine failure and so Lauda made it a McLaren 1-2 with Piquet third, de Angelis fourth and Mansell (who had made a poor start) fifth. Behind Mansell was Tambay but he was soon overtaken by Fabi although both of them were later overhauled by Senna.

On lap 14 there was a dramatic accident when Andrea de Cesaris went off in his Ligier-Renault at high-speed, the car being launched into a dramatic series of rolls, ending up on its wheels. De Cesaris, a man used to big accidents, emerged unhurt. When he got back to the paddock, however, Guy Ligier fired him.

On lap 18 Mansell overtook de Angelis for fourth and he was followed past the Italian by Senna. Prost pitted at mid-distance and dropped behind Lauda. The race looked to be in Lauda's pocket until his turbo failed on lap 40 and so Prost went back into the lead. Piquet had gone with an exhaust problem and Mansell had suffered an engine failure and so second place went to Senna with Alboreto third, Stefan Johansson (Ferrari) fourth, de Angelis fifth and Marc Surer (Brabham-BMW) sixth.