In their season opener against Rice, Anthony Thompson rushed for 105 yards and a pair of touchdowns en route to a 35–13 Indiana win. However, in what was the renewal of their rivalry against Kentucky, the Hoosiers lost 34–15 at Lexington. Indiana rebounded from their loss to the Wildcats with a five-game winning streak. After a win over Missouri, Indiana defeated Northwestern to open their conference schedule behind a 170 yard, and two touchdown performance by Thompson. The next week, the Hoosiers traveled to Columbus to play No. 9 Ohio State, and for the first time since 1951 Indiana defeated the Buckeyes in their 31–10 upset victory.
Indiana followed their upset with a win at Minnesota after Chip Lohmiller missed what would have been a game-winning field goal in the final minutes for the Gophers. The Hoosiers then returned to Bloomington where they defeated Michigan for the first time since the 1967 season to move into first place in the Big 10 standings. After their win over the Wolverines, Indiana was ranked No. 11, however they went on to split their final four games with losses against Iowa and Michigan State and victories over Illinois and Purdue and finished the regular season tied for second in conference with an overall record of eight wins and three losses.
In November, the Hoosiers accepted an invitation to play in the Peach Bowl against Tennessee of the Southeastern Conference Against the Volunteers, Indiana fell behind by a score of 21–3. However, the Hoosiers rallied and took a 22–21 lead in the fourth quarter only to fall 27–22 after Tennessee scored a late touchdown.