Each club needed to progress through four rounds to reach the final. Matches were contested over two legs, with a match at each team's home ground. Liverpool's victories varied from close affairs to comfortable victories. They beat the previous season's runners-up Saint-Étienne by a single goal over two legs, while they defeated FC Zürich 6–1 on aggregate in the semi-final. Borussia Mönchengladbach matches were mainly all close affairs. All but one of their ties were won by the one goal.
Watched by a crowd of 57,000, Liverpool took an early lead through Terry McDermott, but Allan Simonsen equalised for Mönchengladbach early in the second half. Liverpool regained the lead midway through the second half with a goal from Tommy Smith, and Phil Neal ensured Liverpool won the match 3–1 to secure their first European Cup. The victory was a year after they had won the UEFA Cup, which meant that Bob Paisley became the first manager to win the UEFA Cup and European Cup in successive seasons.
Liverpool were the reigning UEFA Cup champions, they had beaten Belgian team Club Brugge4–3 on aggregate to win the 1975–76 UEFA Cup. Liverpool entered the competition as English champions having won the 1975–76 Football League First Division. They were drawn against the Northern Irish champions Crusaders in the first round. The first leg was a home tie at Anfield, which Liverpool won 2–0 courtesy of a Phil Neal penalty and a John Toshack goal. The second leg away at Seaview, was won 5–0 by Liverpool. Four of the goals were scored within nine minutes of the end of the match, to make the scoreline seem more one-sided than the match actually was. Liverpool won the tie 7–0 and were drawn against Turkish champions Trabzonspor in the second round. The first leg was played in Turkey at Hüseyin Avni Aker Stadium. Liverpool's plan was to try to avoid defeat, however that plan failed when Trabzonsor were awarded a penalty midway through the second half. Trabzonspor converted the subsequent penalty and won the match 1–0. Liverpool recovered in the second leg at Anfield. Three goals early in the first half meant they won the match 3–0 to win the tie 3–1 on aggregate and progress to the quarter-finals.
Liverpool's opponents in the quarter-finals were the previous year's beaten finalists Saint-Étienne of France. The first leg was at the Stade Geoffroy-Guichard. As in the previous round Liverpool lost the away leg 1–0. The return leg at Anfield is considered on of Liverpool's most memorable European matches. Liverpool scored in the second minute of the match through Kevin Keegan to level the tie. Early in the second half Saint-Étienne equalised through Dominique Bathenay. The goal meant the that tie was 2–1 in the French team's favour and due to the away goals rule, Liverpool needed to score two goals to progress to the semi-finals. Liverpool scored again midway through the second half to make the 2–2 on aggregate. With 18 minutes remaining David Fairclough replaced John Toshack. After 12 minutes on the pitch, the "supersub" had struck... again. Liverpool went on to win the match 3–1 and the tie 3–2 to progress to semi-finals. Liverpool's opponents in the semi-finals were Swiss champions FC Zürich. The first leg at the Letzigrund was won 3–1 by Liverpool, after they had initially gone a goal behind. Liverpool won the second leg at Anfield 3–0 to win the tie 6–1 on aggregate and ensure their participation in the final.
Borussia's oppostition in the quarter-finals was Belgian champions Club Brugge. The first leg at the Bökelbergstadion saw Borussia concede two goals in the first half. However, they scored two goals in the second half courtesy of Christian Kulik and Allan Simonsen to secure a 2–2 draw. Despite this, Club Brugge had the advantage due to them having two away goals. Borussia knew that they had to score in the second leg at the Jan Breydel Stadium to have any chance of progressing to the semi-finals. The first half was goalless, and with six minutes of the second half remaining Wilfried Hannes scored the goal Borussia needed. The match finished 1–0 and a 3–2 aggregate victory meant they progressed to the semi-finals. Their opposition were Soviet champions Dynamo Kyiv. The first leg at the Central Stadium was won 1–0 by Dynamo. Borussia again needed to score to stay in the competition. Midway through the second half, Rainer Bonhof scored to make the tie 1–1 on aggregate. With eight minutes remaining and tie heading for extra time, Hans-Jürgen Wittkamp scored to give Borussia a two-goal lead. The score remained the same and Borussia progressed to their first European Cup final with a 2–1 aggregate victory.
The 1977 final was the first time Liverpool and Borussia Mönchengladbach had reached the showpiece match. The clubs had faced each other before in the final of a European competition; the 1973 UEFA Cup Final. A match which Liverpool won 3–2 on aggregate. Despite this being both clubs first European Cup final they had both won European competitions. In addition to their UEFA Cup victory over Borussia, Liverpool had won the previous season's UEFA Cup, beating Club Brugge 4–3 on aggregate. Borussia were successful in the 1974–75 UEFA Cup; they beat FC Twente of the Netherlands 5–1 on aggregate.
The first chance of the match was for Borussia; Rainer Bonhof saw his shot come back off the post. In the 24th minute, Borussia player Herbert Wimmer suffered an injury and had to be replaced by Christian Kulik. Three minutes later Ian Callaghan won the ball in midfield and passed to Steve Heighway on the right wing. Heighway cut inside from a wing and passed into space for Terry McDermott who scored the opening goal of the match. Borussia began to exert more of an influence on the game after Liverpool's goal, however they were unable to equalise before the end of the first half.
Seven minutes after the restart Borussia had equalised. A stray Jimmy Case pass was picked up by Allan Simonsen, who advanced towards goal and scored to level the match at 1–1. Moments later, Liverpool thought they had won a penalty when Kevin Keegan seemed to have been brought down by Berti Vogts, however the referee waved play on. Five minutes after their goal, Simonsen crossed the ball from the wing, it was met by Uli Stielike whose shot was saved by Liverpool goalkeeper Ray Clemence. Two minutes later Liverpool regained the lead. They won a corner on the left side of the pitch, Heighway delivered the ball into the penalty area, which was met at the near post by Tommy Smith to give Liverpool a 2–1 lead in what was his 600th appearance for the club. Soon afterwards Bonhof appeared to have brought Heighway down in the penalty area, but the referee again waved play on. However, in the 82nd minute Liverpool were awarded a penalty when Vogts brought Kevin Keegan down. Phil Neal scored the subsequent penalty to give Liverpool a 3–1 lead. No further goals were scored and Liverpool won the match to win their first European Cup.