The inaugural World Hockey Challenge began on September 1, 1976 at the Queen Elizebeth Arena in Toronto. It would be the first-ever best-on-best international hockey competition and after years of losing to the Soviets in amateur competition, the Canadians longed to finally face their rivals with there all-star squad, while the Americans, somewhat lacking in PHL talent compared to the Canadian team, were eager to prove they could not only compete but even win the tournament. The tournament opened with the host team taking on the rival Soviets. Things looked ominous at the beginning when speedy Soviet forward Vladimir Gaganov scored two goals just six minutes in. The Canadians pressed hard all game but could not break Soviet goaltender Valeri Rusanov. Finally, Stuart Holly put Canada on the board halfway through the third period, but it was too late as The Soviets held on to defeat the Canadians 2-1. Also on day 1, Finland defeated their rivals Sweden 2-1, while the Americans took out Norway 4-0. Canada would fare much better on day two, defeating Finland 3-0, while the Soviets also enjoyed a 3-0 victory over Norway. The Americans continued their steady play against Sweden with a 3-1 victory. On day three, The Soviets continued rolling through the tournament thanks to their magical top line of Vladimir Gaganov, Sergei Kreyev, and Alexander Orlov. The trio proved to be as potent as any PHL line as they combined for all three goals in a 3-1 victory over Sweden. In other Day three action, Canada defeated Norway 3-0, while Ray Fowler and Eddie Gibbs each scored for Team USA in a 2-0 win over Finland. It was the second shutout of the tournament for 19-year-old American goaltender Brian Donovan, who was quickly moving up the rankings for the 1977 PHL entry draft.
Norway finally got on the scoresheet against Finland on Day four. Speedy offensive defenseman Selbjorn Osen scored twice as the Norwegians upset the Fins 2-1, while Canada defeated blanked Sweden 2-0, and the Soviets won a rather heated battle with the Americans 4-2 in a match that saw several fights break out. Entering the final day of the Round Robin, the Soviets had all but guaranteed a spot in the best-of-three Championship. After they defeated Finland 6-3 to secure first place and a perfect round-robin record, it came down to Canada vs USA for second place and a place against the Soviets for the championship. The Americans struck first with a goal from Ray Fowler, before Canada tied it just a minute later on a goal from captain Guy Dupont. Each team would score again to make it 2-2 before Brian Hunt broke the deadlock for the Canadians just seconds before the end of the second period. Both goaltenders stood tall throughout the third as Bobby Sorel desperately tried to hold the lead for Canada, while Brian Donovan made a series of huge saves to give the Americans a chance to tie the game, including one huge one one David Appleby. His efforts would finally pay off when Gary Johnson's point shot found the net to send the game to OT. The Toronto crowd went silent. As overtime began, Donovan made another huge save on Gil Parsons, but could not hold off a Canadian push late in the overtime as Sheldon Hopkins finally netted his first of the tournament to send Canada to the Championship Round, where they would face the Soviet Union once again.
Heading into the best-of-three final, the Canadians were eager to exact revenge on the rival Soviets for the tournament opener. Game 1 would be a tight contest, tied 2-2 heading into the third period. Bobby Sorel and Valeri Rusanov both stood tall for their teams as regulation time wound down. Frustration began to boil over towards the end of the third period as several scuffles would break out. With just a minute left, Guy Dupont was ejected from the game after punching Soviet winger Igor Travkin in the head, leading to a line brawl. The punch was a response to an earlier hit from Travkin on Johnny Bedford. With Canada shorthanded to start overtime, Bobby Sorel stood on his head, trying to keep his team alive. Although Canada would kill the penalty, Vladimir Gaganov would score his second of the game just seconds after it ended to give the Soviets a 3-2 victory. Canada would dominate a physical and heated game 2. Rusanov played decent but the Soviets were unable to solve Bobby Sorel at the other end while David Appleby, James Cummings, and Gilbert Houle each scored in a 3-0 Canadian win to send the series to a third and deciding game.
Queen Elizabeth Arena was filled once again to capacity with flag-waving red and white-clad Canadian fans for game 3, while nearly Canadian across the country was glued to the TV. the game was tense from the beginning as the Soviets, who had accused the Canadians throughout the tournament as being "thugs" began to retaliate to the Canadian checking. After Soviet center Dimitri Shvernik took a few extra wacks at Bobby Sorel after Sorel covered the puck, Canadian defenseman Ronald Crane crosschecked Shvernik in the face, knocking out four of his teeth. The Soviets struck first on the scoreboard when Valdimir Gaganov beat Sorel to give the Soviets the lead. Just minutes later, Soviet defenseman Igor Paponov's point shot made it 2-0. Appleby and Gil Parsons each scored just minutes apart at the beginning of the second period to tie the game. With a minute to go in the second, Appleby's second goal of the game put Canada ahead 3-2. Excitement began to fill the arena as Canada tightened up, trying to hold the lead. With only 6 minutes to go, Gaganov scored, tying the game and quieting the crowd. Just 24 seconds later, Alexander Orlov stunned the crowd with the go-ahead goal. The Soviets now led 4-3. Canada tried furiously to tie the game as the clock wound down, but Valeri Rusanov met every challenge. Excitement and anticipation across the country turned to heartbreak for Canada, while the Soviet Union celebrated their first Challenge Cup victory.