Iran’s revolution deeply altered that country’s relationship with the United States. The deposed Iranian ruler, Mohammad Reza Shah Pahlavi, had been close to a succession of U.S. administrations, and this had produced deep suspicion and hostility among Iran’s revolutionary leaders, from both the left and left of the political spectrum. Beginning in the fall of 1978, the U.S. embassy in Tehran had been the scene of frequent demonstrations by Iranians who opposed the American presence in the country and on February 14, 1979, about a month after the shah had fled Iran, the embassy was attacked and briefly occupied.

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.

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. 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 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.

Supporters of the takeover claimed that in 1953, the American Embassy had acted as a "den of spies" from which the coup was organized. Documents were later found in the embassy suggesting that some staff members had been working with the Central Intelligence Agency. Later, the CIA confirmed its role and that of MI6 in Operation Ajax. Revolutionary teams displayed secret documents purportedly taken from the embassy, sometimes painstakingly reconstructed after shredding to buttress their claim that "the Great Satan" (the U.S.) was trying to destabilize the new regime and that Iranian moderates were in league with the U.S. The documents – including telegrams, correspondence, and reports from the U.S. State Department and CIA – were published in a series of books called Documents from the U.S. Espionage Den. According to a 1997 Federation of American Scientists bulletin, by 1995, 77 volumes of Documents from the U.S. Espionage Den had been published. Many of these volumes are now available online.

With the completion of negotiations signified by the signing of the Algiers Accords on January 19, 1981, the hostages were released on January 20, 1981. The Iranian government commemorates the event every year with a demonstration at the embassy and the burning of an American flag.