The Allies wanted to hold the island of Crete as the site of an air base from which bombing raids against the Ploesti oilfields, vital to the German war machine, could be launched. However, the demands of other fronts left Crete weakly garrisoned by just 35,000 men (British, Commonwealth, and Greek troops), poorly armed and subject to non-cohesive command. Moreover, the harsh, mountainous terrain of Crete impeded defense. Artillery and air support were virtually nil.

On May 20, German paratroops of Fliegerkorps 11, under General Kurt Student, landed at both ends of Crete. The Allies responded by broadcasting defenders across the island, spreading them thin. For their part, the Germans had underestimated the size of the island's garrison and had to call for reinforcements from the island of Milos. The troop transports were either dispersed or sunk by British air and sea attacks. Despite this blow to the attackers, the paratroopers managed to take the airfield at Maleme, which quickly turned the tide hopelessly against the defenders.

On May 26, Lt. Gen Sir Bernard Freyberg, in command of the garrison, reported that his position was untenable. After securing permission to evacuate, he ordered a retreat on May 27 to Sphakia while troops at Heraklion were quickly evacuated by British warships. The defenders of the Retimo airfield were cut off and captured. In the meantime, the main force, at Sphakia, fell under heavy air attack, and the evacuation ships were pummeled. Three cruisers and six destroyers were sunk, and 17 other vessels were damaged. By May 30, the evacuation had to be aborted, leaving 5,000 men still on the island. Most of these were doomed to capture, but a small body escaped to join the Cretan resistance and were active until the German withdrawal from Crete in 1944.

After the Allied evacuation, Italian troops were sent to occupy the eastern Cretan provinces of Siteia and Lasitho while German troops held the rest of the island. Total losses at the Battle of Crete were 1,742 British, Greek, and Commonwealth troops killed, 2,225 wounded, and 11,370 captured. Royal Navy losses were some 2,000 men killed and 183 wounded. Losses to the Germans testified to the ferocity of the Allied defense: 7,000 were killed. Viewed by Adolf Hitler as a Pyrrhic victory, the Battle of Crete persuaded him to ban further airborne assaults as too costly, and, for the rest of the war, the Germans never launched another major paratroop operation.

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