On the night of January 2, 1777, Washington repulsed a British attack at the Battle of the Assunpink Creek. That night, he evacuated his position, circled around General Cornwallis' army, and went to attack the British garrison at Princeton.

On January 3, Brigadier General Hugh Mercer of the Continental Army clashed with two regiments under the command of Mawhood. Mercer and his troops were overrun, and Mercer was mortally wounded. Washington sent a brigade of militia under Brigadier General John Cadwalader to help them. The militia, on seeing the flight of Mercer's men, also began to flee. Washington rode up with reinforcements and rallied the fleeing militia. He then led the attack on Mawhood's troops, driving them back. Mawhood gave the order to retreat, and most of the troops tried to flee to Cornwallis in Trenton.

After entering Princeton, the Americans began to loot the abandoned British supply wagons and the town. With news that Cornwallis was approaching, Washington knew he had to leave Princeton. Washington wanted to push on to New Brunswick and capture a British pay chest of 70,000 pounds, but Major Generals Henry Knox and Nathanael Greene talked him out of it. Instead, Washington moved his army to Somerset Courthouse on the night of January 3, then marched to Pluckemin by January 5, and arrived at Morristown by sunset the next day for winter encampment. After the battle, Cornwallis abandoned many of his posts in New Jersey and ordered his army to retreat to New Brunswick. The next several months of the war consisted of a series of small scale skirmishes known as the Forage War.