The disaster at San Francisco had been brewing for weeks, and its roots lay not in Chilean strength but in Allied dysfunction. After Chile's amphibious landing at Pisagua on November 2, the Allied war council at Tacna devised a plan: Bolivian President Hilarion Daza would march his army 150 kilometers across the Atacama to rendezvous with General Juan Buendia's Peruvian forces at Tana, north of Pisagua. Together they would retake the port. Peruvian President Prado advised Daza to march at night to spare his troops the desert heat. Daza did the opposite. Uncertain of his soldiers' loyalty, he deliberately marched them in daylight and allowed them to carry wine. By the time he reached Camarones, 200 men had fallen out. Daza used their exhaustion as his excuse to turn around and retreat to Arica without ever meeting Buendia. The Peruvian general, who had spent two weeks gathering scattered divisions across the Tarapaca interior, would face the Chileans alone. What Daza did is still known as the Camarones Betrayal.

The Chilean position at San Francisco Hill was strong but thin. Lieutenant Colonel Jose Francisco Vergara had persuaded Colonel Emilio Sotomayor to deploy on the hilltop rather than at the more exposed Santa Catalina, arguing correctly that the Chileans were outnumbered roughly two to three. The argument between them grew violent before Sotomayor relented. Atop the hill, Colonel Jose Domingo Amunategui arranged his forces with Salvo's battery of eight cannons and just 63 artillerymen covering the southern and western approaches. When the accidental battle erupted, Bolivian General Carlos de Villegas launched his attack directly at this thin center. Colonel Ladislao Espinar led four companies up the slope in guerrilla formation. Salvo's 63 men lined up in front of their cannons and fired Winchester carbines into the advancing troops. They were massively outnumbered and barely held long enough for Captain Cruz Daniel Ramirez to arrive with two companies of the Atacama Battalion. Espinar died roughly 40 paces from the Chilean guns.

The fighting at the center of San Francisco Hill became hand-to-hand. After Espinar fell, Colonel Lavadenz brought the Dalence Battalion forward and renewed the assault. Ramirez received reinforcements from the Coquimbo Battalion and threw them back. At one point, Allied reserve troops fired into the melee from below, hitting their own comrades in the back. When the full Atacama Battalion arrived, the clash turned savage. Contemporary accounts describe masses of men from both sides literally rolling down the hillside, stabbing and bayoneting each other as they fell. The Chileans crushed several Allied companies and finally drove Villegas' column off the hill entirely. Had the Bolivian general taken those eight cannons, he could have turned them on the Chilean center and split Sotomayor's front in two. The battle's outcome hinged on those 63 artillerymen holding just long enough. On the flanks, Buendia's column was stopped by concentrated artillery fire, and Villamil's attack dissolved under shelling. By 5:00 in the evening, Allied morale collapsed. Soldiers scattered in all directions across the Pampa del Tamarugal.

Chile lost 208 men killed and wounded. The Allied forces counted 296 casualties and 1,500 missing, many of whom simply walked away from the war. The defeat shattered what remained of the Peruvian-Bolivian alliance's confidence. Daza's betrayal had already demoralized the Bolivian contingent, and the rout at San Francisco broke their willingness to fight. Roughly 4,500 Allied troops retreated in order toward Tarapaca under the steady leadership of Caceres and Suarez, but the larger army had ceased to function. The Chileans did not pursue, believing a bigger fight awaited the next day. It did not. The Campaign of Tarapaca would grind on through further engagements, but San Francisco confirmed what Pisagua had begun: Chile's control of the saltpeter coast was becoming irreversible, and the map of South America was being redrawn in the dust of the Atacama.