On November 4, 1979, 52 United States diplomats and citizens were held hostage after a group of militarized Iranian college students belonging to the Muslim Student Followers of the Imam's Line, who supported the Iranian Revolution, took over the U.S. Embassy in Tehran and seized hostages. A diplomatic standoff ensued. The hostages were held for 444 days, being released on January 20, 1981.

Western media described the crisis as an "entanglement" of "vengeance and mutual incomprehension". U.S. President Jimmy Carter called the hostage-taking an act of "blackmail" and the hostages "victims of terrorism and anarchy". In Iran, it was widely seen as an act against the U.S. and its influence in Iran, including its perceived attempts to undermine the Iranian Revolution and its longstanding support of the shah of Iran, Mohammad Reza Pahlavi, who was overthrown in 1979. After Shah Pahlavi was overthrown, he was admitted to the U.S. for cancer treatment. Iran demanded his return in order to stand trial for crimes that he was accused of committing during his reign. Specifically, he was accused of committing crimes against Iranian citizens with the help of his secret police. Iran's demands were rejected by the United States, and Iran saw the decision to grant him asylum as American complicity in those atrocities. The Americans saw the hostage-taking as an egregious violation of the principles of international law, such as the Vienna Convention, which granted diplomats immunity from arrest and made diplomatic compounds inviolable. The Shah left the United States in December 1979 and was ultimately granted asylum in Egypt, where he died from complications of cancer at age 60 on July 27, 1980.

Six American diplomats who had evaded capture were rescued by a joint CIA–Canadian effort on January 27, 1980. The crisis reached a climax in early 1980 after diplomatic negotiations failed to win the release of the hostages. Carter ordered the U.S. military to attempt a rescue mission – Operation Eagle Claw – using warships that included USS Nimitz and USS Coral Sea, which were patrolling the waters near Iran. The failed attempt on April 24, 1980, resulted in the death of one Iranian civilian and the accidental deaths of eight American servicemen after one of the helicopters crashed into a transport aircraft. U.S. Secretary of State Cyrus Vance resigned his position following the failure. In September 1980, Iraq invaded Iran, beginning the Iran–Iraq War. These events led the Iranian government to enter negotiations with the U.S., with Algeria acting as a mediator. The crisis is considered a pivotal episode in the history of Iran–United States relations.Political analysts cited the standoff as a major factor in the continuing downfall of Carter's presidency and his landslide loss in the 1980 presidential election; the hostages were formally released into United States custody the day after the signing of the Algiers Accords, just minutes after American President Ronald Reagan was sworn into office. In Iran, the crisis strengthened the prestige of Ayatollah Ruhollah Khomeini and the political power of theocrats who opposed any normalization of relations with the West. The crisis also led to American economic sanctions against Iran, which further weakened ties between the two countries.