In his advance on Philadelphia, Howe had once again defeated and outmaneuvered Washington. And as before, Howe underestimated the resourcefulness and combativeness of his opponent. Once in Philadelphia, he split up his army. He sent 3,000 men to bring up supplies, detached a small force to attack a fort in New Jersey, and stationed four battalions of grenadiers in Philadelphia. To ward off Washington, he posted 9,000 men seven miles away at the village of Germantown. This isolated camp became an irresistible target for Washington. Howe and Washington repeatedly made the same mistakes when fighting each other. As a result, their campaigns of 1776 and 1777 followed the same pattern. Howe would win strategically barren victories and take a city, while Washington controlled the countryside and kept the revolution alive.

Washington lurked for a time outside Philadelphia collecting reinforcements. Once he learned of the dispersal of Howe's forces, he moved his army closer to Germantown. The British were camped along a three-mile line, but they had not entrenched themselves. Washington decided to launch an attack reminiscent of his assault on Trenton. He would send multiple columns against the unwary British in an attempt to catch them in a crushing double envelopment. As with Trenton, his plan was probably too complicated for troops who lacked the training and discipline of true professionals. Unlike Trenton, everything that could go wrong did.

At seven o'clock on the evening of October 3, four columns left the American camp for a sixteen-mile march to Germantown. Militia made up the two flanking columns. The main thrust of the attack would come from the two central columns of Continentals. On the right, John Sullivan commanded a force spearheaded by his division and Anthony Wayne's. On the left, Nathanael Greene commanded his division and Adam Stephen's. All four columns were supposed to reach their assembly areas two miles from the British line by two o'clock in the morning and then launch simultaneous bayonet charges at five.

The militia columns never made it to the battle. Greene's column lost its way and arrived late. Only Sullivan's attack went off on time. At first his and Wayne's troops drove the surprised British before them. Wayne's men ruthlessly avenged in part their defeat at Paoli. General Howe rode up to his retreating soldiers crying, “For shame, Light Infantry! … It's only a scouting party.” The redcoats had the satisfaction of seeing grapeshot burst over their commander's head, disabusing him of the notion that a mere scouting party was advancing against him.

A large party of British soldiers barricaded themselves in the large stone mansion of Chief Justice Benjamin Chew. They sent a galling fire into the flanks of Sullivan's and Wayne's men. Instead of masking the house with a guard of infantry and moving on, Washington listened to Henry Knox, who insisted that this nest of enemies could not be left in the rear of the army. The stout walls of the Chew house resisted Knox's artillery. Reserves of infantry who should have moved forward directed their fire at the Chew house instead.

A morning mist had turned into a heavy fog, made worse by gun smoke. The various components of the American columns could not see each other. Sullivan's and Wayne's divisions began to run low on ammunition. The Americans made the situation worse by shouting the fact to each other, heartening their British opponents.

Greene finally arrived at the battlefield. He led his men forward and drove the British in front of him. General Stephen, who had been drinking heavily, heard the sound of firing to his right and broke off in that direction. What he heard was the cannonading and volleying at the Chew house; that the sound came from behind them confused the foremost American units. Wayne thought it meant that Sullivan needed help. He marched in that direction and ran into Stephen's men. In the fog Stephen's division fired on what they thought was the enemy. Wayne's troops shot back, and both divisions scattered in a panic.

British resistance stiffened. Sullivan's and Greene's men still in the field found themselves attacked from several directions and began to retreat. Sullivan, Greene, and Wayne fought delaying actions to hold back the British pursuit, but the bulk of the army became a disorganized mass. Washington tried to rally these men, “exposing himself to the hottest fire,” one observer wrote. His weary soldiers held up their empty cartridge boxes and continued on their way to the rear. The battle was over. The British, who had been badly shaken, did not press far after the retreating Americans. The American losses were harsh — 152 men killed, 521 wounded, and 400 captured. The British reported seventy killed and 450 wounded.