Incumbent Democratic Governor Tony Knowles was term limited from running again. Lieutenant Governor Fran Ulmer easily won the Democratic primary on 27 August against outsiders Michael Beasley and Bruce Lemke, neither of whom did much campaigning. Meanwhile, Senator Frank Murkowski also gained an easy win in the Republican primary.
Murkowski started the campaign as the clear favourite as Ulmer, despite being Lieutenant Governor, had a lot less name recognition. Polls initially showed Ulmer about 20 percent behind Murkowski but as the campaign continued Ulmer closed on Murkowski in the polls by concentrating on local issues such as the state budget and by portraying herself as a moderate. By October polls showed the candidates about level with one poll on the 17 October showing Ulmer on 46% and Murkowski on 43%.
The biggest issue in the campaign was the economy and what to do about the projected budget shortfall in Alaska. The issue dominated the October debates between the two candidates in Fairbanks and Anchorage. Ulmer argued that the state should consider introducing a statewide tax for the first time since 1980 if the budget reserve fell too far and that state spending should be capped. However Murkowski opposed any new taxes and called his opponent pro-tax. He said that new oil prospects, high oil prices and revenues from other resources could close the gap in the budget.