The earthquake struck on the morning of 1 November, the Catholic holiday of All Saints' Day. Contemporary reports state that the earthquake lasted between three-and-a-half and six minutes, causing gigantic fissures five metres (16 ft) wide to appear in the city centre. The survivors rushed to the open space of the docks for safety and watched as the water receded, revealing a sea floor littered by lost cargo and old shipwrecks. Approximately forty minutes after the earthquake, an enormous tsunami engulfed the harbour and downtown, rushing up the Tagus river. It was followed by two more waves. In the areas unaffected by the tsunami, fire quickly broke out, and flames raged for five days.
Lisbon was not the only Portuguese city affected by the catastrophe. Throughout the south of the country, in particular the Algarve, destruction was rampant. The shockwaves of the earthquake were felt throughout Europe as far as Finland and North Africa. Tsunamis up to 20 metres (66 ft) in height swept the coast of North Africa, and struck Martinique and Barbados across the Atlantic. A three-metre (ten-foot) tsunami hit the southern English coast. Galway, on the west coast of Ireland, was also hit, resulting in the partial destruction of the "Spanish Arch".

Of a Lisbon population of 275 000, up to 90 000 were killed. Another 10 000 were killed in Morocco. Eighty-five percent of Lisbon's buildings were destroyed, including famous palaces and libraries, as well as most examples of Portugal's distinctive 16th-century Manueline architecture. Several buildings that had suffered little earthquake damage were destroyed by the subsequent fire. The brand new Opera House, opened only six months before (under the ill-fated name Phoenix Opera), was burned to the ground. The Royal Ribeira Palace, which stood just beside the Tagus river in the modern square of Terreiro do Paço, was destroyed by the earthquake and tsunami. Inside, the 70 000-volume royal library as well as hundreds of works of art, including paintings by Titian, Rubens, and Correggio, were lost. The royal archives disappeared together with detailed historical records of explorations by Vasco da Gama and other early navigators. The earthquake also damaged major churches in Lisbon, namely the Lisbon Cathedral, the Basilicas of São Paulo, Santa Catarina, São Vicente de Fora, and the Misericordia Church. The Royal Hospital of All Saints (the biggest public hospital at the time) in the Rossio square was consumed by fire and hundreds of patients burned to death. The tomb of national hero Nuno Álvares Pereira was also lost. Visitors to Lisbon may still walk the ruins of the Carmo Convent, which were preserved to remind Lisboners of the destruction.
It is said that many animals sensed danger and fled to higher ground before the water arrived. The Lisbon quake is the first documented reporting of such a phenomenon in Europe.