The violence at Mud Springs did not begin there. Three months earlier, in November 1864, Colonel John Chivington had led Colorado militia in an attack on a peaceful Cheyenne and Arapaho encampment at Sand Creek, killing over 150 people, mostly women and children. The survivors fled north, spreading word of the massacre. By January 1865, a coalition of Lakota Sioux, Cheyenne, and Arapaho had united in fury, spending weeks raiding along the South Platte River in Colorado. On February 2, they burned the settlement of Julesburg. The next day, they destroyed a telegraph station on Lodgepole Creek. On February 4, their advance party reached Mud Springs, a lonely stagecoach and telegraph station eight miles northwest of present-day Dalton, Nebraska. The coalition was moving toward the Powder River Country of Wyoming, striking as they traveled.

The sod walls of Mud Springs station sheltered nine soldiers and five civilians when the first warriors appeared. The advance party quickly captured eighteen horses and a large cattle herd, but the telegraph remained operational. The operator tapped out desperate appeals for help: Fort Mitchell lay fifty-five miles west, Fort Laramie one hundred five miles beyond that. Lieutenant William Ellsworth rode through the night with thirty-six men, arriving at daybreak on February 5 to find more than a thousand warriors gathering around the station. When Ellsworth sent sixteen troopers to hold a nearby bluff, five hundred warriors attacked, forcing a retreat that cost one soldier killed and another wounded. Archaeological evidence reveals the intensity: bullets from twenty-one different firearm types have been recovered from the site. Both sides carried Spencer carbines, the repeating rifle that was revolutionizing warfare on the frontier.

The defenders found an unexpected tactic. That afternoon, soldiers opened the corrals and released their remaining horses. The stampeding animals scattered across the prairie, and hundreds of warriors broke from the siege to chase them. By evening, the Indians had tired of trading fire with men protected by thick walls and withdrew to a camp ten miles east. Colonel Collins arrived at two in the morning on February 6 with twenty-five men, and by dawn his full command of one hundred twenty soldiers staggered into Mud Springs, frostbitten and exhausted from a two-day forced march. When the warriors returned that morning, perhaps a thousand strong, Collins secured his horses in a makeshift corral of four wagons. From seventy-five yards away, two hundred warriors showered the corral with arrows, killing and wounding horses and injuring men. Collins sent soldiers forward to push the archers out of range and seize the high ground. The Indians slowly withdrew, departing the battlefield.

That night, Lieutenant William Brown arrived with fifty additional troopers and a twelve-pounder mountain howitzer. Collins prepared to attack the next morning, but the Indian forces had gone. The massive encampment, perhaps four to five thousand men, women, and children, moved leisurely to the North Platte River, crossing on ice and camping among bluffs five miles north. They planned to rest their horses for four days, not expecting pursuit. Collins surprised them. Leaving a garrison at Mud Springs, he followed the trail with one hundred eighty-five men, finding the abandoned camp strewn with plunder. At the North Platte, he discovered the Indians and engaged them again in what became known as the Battle of Rush Creek. One soldier later remarked sarcastically that catching the Indians "was an easy enough matter, but we had a terribly hard time letting them go."

Official Army records listed one soldier killed and eight wounded at Mud Springs. Colonel Collins estimated thirty Indian casualties. The Cheyenne warrior George Bent, who may have participated in the engagement, later claimed no Indians died. Both accounts cannot be true, and the discrepancy speaks to the fog of frontier warfare, where neither side could accurately assess enemy losses and both had reason to inflate or minimize the count. What remains certain is that Mud Springs represented a significant engagement, one of the largest gatherings of Plains Indian warriors against Army forces in Nebraska Territory. Today the site is a National Historic Landmark, the sod walls long dissolved back into prairie earth, the telegraph line silent for over a century. Only the landscape endures, rolling grassland where a handful of men once held out against overwhelming odds in the freezing February wind.