Events leading up to the confrontation were typical of the irresolute and confusing policy of the U.S. government toward American Indians. Although the Second Treaty of Fort Laramie (1868), in effect, had guaranteed to Indians exclusive possession of the Dakota territory west of the Missouri River, white miners in search of gold were settling in lands sacred to the Dakota Indians. Unwilling to remove the settlers, unable to persuade the Dakota to sell the territory, and feeling that the occasional Indian raid on a white settlement effectively released them from the treaty, the U.S. government issued an order to the Indian agencies that all the Indians return to the designated reservations by January 31, 1876, or be deemed hostile. The improbability of getting this message to the hunters, coupled with its rejection by many of the Plains Indians, made confrontation inevitable.

In June of 1876, the government sent in troops under the command of Brigadier General Alfred H. Terry to locate and rout the Indians. Terry, taking the main body of men up the Yellowstone River, hoped to block the movement of the Indians at the mouth of the Little Bighorn River, while Custer and the 7th Cavalry were to travel up the Rosebud River and cross the Little Bighorn River, thus, it was hoped, trapping the Indians between the two groups. Some three days into his march, Custer abandoned the plan when he rather suddenly encountered a large group of Sioux and Cheyenne encamped nearby. Envisioning a three-pronged attack, he ordered Captain Frederick Benteen and Major Marcus Reno to lead troops on either side of the river, while he would advance to the northwest and surprise the encampment from the north. Reno, who attacked first (and long before Custer reached the northern edge of the camp), was clearly overwhelmed by the Indians, and he retreated across the river, losing his strategic edge. He was joined by Benteen's fresh troops, and the combined forces dug in and continued to fight. At Reno's retreat, however, the major force of Indians, by then alerted to Custer's presence, rode to the attack and completely vanquished Custer and his men within an hour, leaving more than 200 dead.