Carrington, saddled with 21 women and children dependents who had accompanied him from Fort Kearny, Nebraska, maintained a defensive stance. A clique of his younger and more impetuous officers, who disliked him and resisted his attempts to impose discipline, were contemptuous. Prominent among them was Captain William J. Fetterman, who boasted that he and 80 men could ride through the whole Sioux Nation.

On December 21, 1866, a small war party, in a feint, made a typical attack on a wood train returning eastward from Piney Island to the fort. To relieve the train, Carrington sent out Fetterman, two other officers, 48 infantrymen, 28 cavalrymen, and two civilians—81 men in all. Although warned not to cross Lodge Trail Ridge, where he would be out of sight of the fort, Fetterman let a small party of warriors decoy him northward well beyond the ridge and into a carefully rehearsed ambush prepared by Red Cloud. Within half an hour, at high noon, hundreds of Sioux, Cheyenne, and Arapaho warriors annihilated the small force to the last man. Relief columns from the fort, which scattered the Indians, were too late to rescue Fetterman and his men. They had suffered the worst defeat inflicted by the Plains Indians on the Army until that time and one that vied with subsequent debacles, such as the Battle of the Little Bighorn.

Following the Fetterman Disaster, Carrington hired civilians John "Portugee" Phillips and Daniel Dixon to carry a message for Omaha headquarters concerning the disaster and a plea for reinforcements to the telegraph station at Horseshoe Bend, near Fort Laramie. Phillips continued on through a snowstorm to Fort Laramie on a 236-mile ride, honored in the annals of Wyoming history. Carrington was replaced in January 1867.

By that summer the Indians had closed the Bozeman Trail to all but heavily guarded military convoys, but the troops won two victories. The Sioux and Cheyennes agreed to pool their resources and wipe out Forts Phil Kearny and C. F. Smith. One faction, in the Hayfield Fight, attacked a haying party near Fort C. F. Smith on August 1st, but suffered heavy casualties. The next day the other group, 1,500 to 2,500 Sioux and Cheyennes led by Red Cloud, set upon a detachment of 28 infantrymen guarding civilian woodcutters a few miles west of Fort Phil Kearny. Most of the civilians succeeded in safely reaching the post, but four were trapped with the soldiers in an oval barricade that had been formed earlier as a defensive fortification from the overturned boxes of 14 wood-hauling wagons that had been removed from the running gears. The troops were armed with newly issued beech-loading Springfield rifles—a costly surprise for the Sioux. Six times in four hours they charged the wagon boxes, but each time were thrown back with severe casualties. Reinforcements finally arrived from the fort with a mountain howitzer and quickly dispersed the opposition. The Army reported only about three dead and two wounded, but the Indians claimed the figures were at least 60 and 120, respectively.

The Hayfield and Wagon Box Fights exacted a modicum of revenge for the Fetterman Disaster, but they did not deter hostilities. Forays increased steadily until the next year, when the government was forced to come to terms with the Indians. In the Treaty of Fort Laramie (1868), in return for certain Indian concessions, it bowed to Red Cloud's demands and agreed to close the Bozeman Trail and abandon the three forts protecting it. As soon as this occurred, in July and August, the Sioux, unknowingly celebrating the zenith of their power on the northern Plains, jubilantly burned them to the ground.

The basically unaltered natural scene of the sites of Fort Phil Kearny, the Fetterman Disaster, and the Wagon Box Fight, despite surrounding ranch operations, are marred by but few modern intrusions. Picturesquely located at the foot of the Bighorn Mountains, they permit ready historical visualization. Nothing remains of the fort, whose approximate location is about 1 mile west of U.S. 87 and 2½

 miles southeast of Story. The site is marked by one side of a stockade, all that survives from a Works Progress Administration (WPA) reconstruction in the 1930's, and a log cabin erected by the Boy Scouts. The State owns three acres of the probable 25-acre site. About 5 miles to its north, along U.S. 87 and about 1½  miles northeast of Story, is the spur ridge east of Peno Creek, and the route of the Bozeman Trail, along which Fetterman and his men retreated southward. At the southern end of the estimated 60 privately owned acres embracing the battlefield, at the point where most of the bodies were found, stands a War Department monument on a tiny tract of Federal land on the east side of the highway. The only modern intrusion of consequence is the highway. Another monument, lying in an upland prairie some 1½  miles southwest of Story, marks the location of the Wagon Box Fight, 1 acre of which is State owned out of an estimated 40-acre total.

Today the state historic site provides an interpretive center with exhibits, videos, bookstore, and self-guided tours of the fort and outlying sites. The fort tour leads the visitor through the site to building locations, archaeological remains, and interpretive signs pinpointing the surrounding historic landmarks. A Civilian Conservation Corp Cabin has been refurbished to depict the quarters of an Officer’s wife and a Non-Commissioned Officer’s Quarters. At both battlefield sites, visitors will find an interpretive trail which leads through the battle providing both Indian and White perspectives of the conflict.

The fort site and those of the Fetterman Disaster and Wagon Box Fight lie within a few miles of one another just off I-90 in the vicinity of Story, Wyoming. The fort and Wagon Box sites are located on secondary roads, and the Fetterman Disaster site is on U.S. 87. Follow road markers.