The battle was the bloodiest ever fought on Irish soil – over 7,000 people were killed. It meant the effective end of Jacobitism in Ireland, although the city of Limerick held out until the autumn of 1691.

The Jacobite position in the summer of 1691 was a defensive one. In the previous year, they had retreated behind the River Shannon, which acted as an enormous moat around the province of Connacht, with strongholds at Sligo, Athlone and Limerick guarding the routes into Connacht. From this position, the Jacobites hoped to receive military aid from Louis XIV of France via the port towns and eventually be in a position to re-take the rest of Ireland.

Godert de Ginkell, the Williamite's Dutch general, had breached this line of defense by crossing the Shannon at Athlone - taking the town after a bloody siege. The Marquis de St Ruth (General Charles Chalmont), the French Jacobite general moved too slowly to save Athlone, as he had to gather his troops from their quarters and raise new ones from rapparee bands and the levies of Irish landowners. Ginkel marched through Ballinasloe, on the main road towards Limerick and Galway, before he found his way blocked by St Ruth’s army at Aughrim on the 12th of July 1691. Both armies were about 20,000 men strong. The soldiers of St Ruth’s army were mostly Irish Catholic, while Ginkel's were English, Scottish, Danish, Dutch and French Huguenot (members of William III’s League of Augsburg) and Ulster Protestants.

The Jacobite position at Aughrim was quite strong. St Ruth had drawn up his infantry along the crest of a ridge known as Kicommadan Hill. The hill was lined with small stone walls and hedgerows which marked the boundaries of farmer’s fields, but which could also be improved and then used as earthworks for the Jacobite infantry to shelter behind. The left of the position was bounded by a bog, through which there was only one causeway, which was overlooked by Aughrim village and a ruined castle. On the other, open, flank, St Ruth placed his best infantry and most of his cavalry under Patrick Sarsfield.

The battle started with Ginkel trying to assault the open flank of the Jacobite position with cavalry and infantry. This attack ground to a halt after determined Jacobite counter-attacks and the Williamites halted and dug in behind stakes driven into the ground to protect against cavalry. The French Huguenot forces committed here found themselves in low ground exposed to Jacobite fire and took a great number of casualties. Contemporaneous accounts speak of the grass being slippery with blood. To this day, this area on the south flank of the battle is known locally as the "Bloody Hollow".  In the centre, the Williamite infantry under Hugh Mackay tried a frontal assault on the Jacobite infantry on Kilcommadan Hill. The Williamite troops, mainly English and Scots, had to take each line of trenches, only to find that the Irish had fallen back and were firing at them from the next line. The Williamite infantry attempted three assaults, the first reached the furthest. Eventually, the final Williamite assault was driven back with heavy losses by cavalry and pursued into the bog, where more of them were killed or drowned. In the rout, the pursuing Jacobites manage to spike a battery of Williamite guns.

This left Ginkel with only one option, to try to force a way through the causeway on the Jacobite left. This should have been an impregnable position, with the attackers concentrated into a narrow lane and covered by the defenders of the castle there. However, the Irish troops there were short on ammunition. Mackay directed this fourth assault, consisting mainly of cavalry, in two groups - one along the causeway and one parallel to the south. The Jacobites stalled this attack with heavy fire from the castle, but then found that their reserve ammunition, which was British made, would not fit into the muzzles of their French supplied muskets. The Williamites then charged again with a reasonably fresh regiment of Anglo-Dutch cavalry under Henri de Massue, faced with only weak musket fire they crossed the causeway and reached Aughrim village with few casualties. A force of Jacobite cavalry under Henry Luttrell was held in reserve to cover this flank. However rather than counterattacking at this point, their commander ordered them to withdraw, following a route now known locally as "Luttrell's pass". Henry Luttrell was alleged to have been in the pay of the Williamites and was assassinated in Dublin after the war.

The General Marquis de St Ruth after the third infantry rush on the Williamite position up to their cannons, appeared to believe that the battle could be won and was heard to shout, "they are running, we will chase them back to the gates of Dublin". However, as he tried to rally his cavalry on the left to counter-attack and drive the Williamite horse back, he was decapitated by a cannon ball. At this point, the Jacobite position collapsed very quickly. Their horsemen, demoralized by the death of their commander, fled the battlefield, leaving the left flank open for the Williamites to funnel more troops into and envelope the Jacobite line. The Jacobites on the right, seeing the situation was hopeless, also began to melt away, although Sarsfield did try to organize a rearguard action. This left the Jacobite infantry on Killcommadan Hill completely exposed and surrounded. They were slaughtered by the Williamite cavalry as they tried to get away, many of them having thrown away their weapons in order to run faster. One eyewitness, George Storey, said that bodies covered the Hill, and looked from a distance like a flock of sheep.

Estimates of the two armies' losses vary. It is generally agreed that about 7000 men were killed at the battle. Some recent studies put the Williamite dead as high as 3000, with 4000 Jacobites killed. However the Williamite death toll released by them at the time was only 600. Many of the Jacobite dead were officers, who were very difficult to replace. On top of that, another 4000 Jacobites either deserted or were taken prisoner. What was more, they had lost the better part of their equipment and supplies. For these reasons, Aughrim was the decisive battle of the Williamite war in Ireland. The city of Galway surrendered without a fight after the battle and the Jacobite's main army surrendered shortly afterwards at Limerick after a short siege. The battle according to one author, "seared into Irish consciousness", and became known in the Irish language tradition as Eachdhroim an áir - "Aughrim of the slaughter". The contemporary Gaelic poet Séamas Dall Mac Cuarta wrote of the Irish dead, "It is at Aughrim of the slaughter where they are to found, their damp bones lying uncoffined". Another poet wrote, "Our friends in vast numbers and languishing forms, left lifeless in the mountains and corroded by worms".

Since it marked the end of the Irish Catholic Jacobite resistance, Aughrim was the focus of Loyalist (particularly Orange Order) celebrations in Ireland on the 12th of July up until the early 19th century. Thereafter, it was superseded by the Battle of the Boyne in commemorations on "the Twelfth" due to the switch to the Gregorian calendar (in which 1 July OS became 12 July NS and 12 July OS became 23 July NS). It has also been suggestedthat the Boyne was preferred because the Irish troops there were more easily presented as cowardly, whereas at Aughrim they generally fought bravely.