Around 7 am on May 16, Union forces engaged the Confederates and the Battle of Champion Hill began. Pemberton's force formed into a three-mile (5 km)-long defensive line that ran southwest to northeast along a crest of a ridge overlooking Jackson Creek. Grant wrote in his Personal Memoirs, "... where Pemberton had chosen his position to receive us, whether taken by accident or design, was well selected. It is one of the highest points in that section, and commanded all the ground in the range."

Pemberton was unaware that one of the three Union columns was moving along the Jackson Road against his unprotected left flank on Champion Hill. Pemberton posted Brig. Gen. Stephen D. Lee's Alabama brigade on Champion Hill where they could watch for a Union column reported moving on the crossroads. Lee soon spotted the Union troops and they in turn saw him. If the enemy force was not stopped, it would cut the Confederates off from their Vicksburg base. Pemberton was warned of the Union movement and sent troops to defend his left flank. Union forces at the Champion House moved into action and their artillery began firing.

When Grant arrived at Champion Hill at about 10:00 a.m., he ordered an attack to begin. John A. McClernand's corps attacked on the left and James B. McPherson's on the right. William T. Sherman's corps was well behind the others, departing from Jackson. By 11:30 a.m., the Union forces had reached the Confederate's main line. At 1:00 p.m., they took the crest, the troops from Carter L. Stevenson's division retiring in disorder. McPherson's corps swept forward, capturing the crossroads and closing the Jackson Road escape route. The division of John S. Bowen counterattacked in support of Stevenson, pushing the Federals back beyond the Champion Hill crest before their surge was halted. However, they were too few to hold the position. Pemberton directed William W. Loring to send forces from the southern area of the line, where they were only lightly engaged with McClernand's ineffective attack, to reinforce the Hill. However, Loring refused to budge, citing a strong Union presence to his front.

Grant now counterattacked, committing his forces that had just arrived from Clinton by way of Bolton. Pemberton's men could not resist this assault, and he ordered his men to use the one escape route still open, the Raymond Road crossing of Bakers Creek. By now, Loring had decided to obey Pemberton's order and was marching toward the fighting by a circuitous route that kept them out of action. Brig. Gen. Lloyd Tilghman's brigade formed the rearguard and held at all costs, including the death of Tilghman, killed by artillery fire. Late in the afternoon, Grant's troops seized the Bakers Creek Bridge, and by midnight they had occupied Edwards. The Confederates fell back to a defensive position at the Big Black River in front of Vicksburg. The Battle of Big Black River Bridge the next day would be the final chance for Pemberton to escape.

McClernand's casualties were low on the Union left flank (south); McPherson's on the right constituted the bulk of the Union losses, about 2,500. The Confederates suffered about 3,800 casualties.