Having lured General Westmoreland's forces into the hinterland at Khe Sanh in Quảng Trị Province, in January 1968, the NVA and NLF broke the truce that had traditionally accompanied the Tết (Lunar New Year) holiday. They launched the surprise Tet Offensive in the hope of sparking a national uprising. Over 100 cities were attacked, with assaults on General Westmoreland's headquarters and the U.S. Embassy, Saigon.

Although the U.S. and South Vietnamese forces were initially taken aback by the scale of the urban offensive, they responded quickly and effectively, decimating the ranks of the NLF. In the former capital city of Huế, the combined NLF and NVA troops captured the Imperial Citadel and much of the city, which led to the Battle of Huế. Throughout the offensive, the American forces employed massive firepower; in Huế where the battle was the fiercest, that firepower left 80% of the city in ruins. During the interim between the capture of the Citadel and end of the "Battle of Huế", the communist insurgent occupying forces massacred several thousand unarmed Huế civilians (estimates vary up to a high of 6,000). After the war, North Vietnamese officials acknowledged that the Tet Offensive had, indeed, caused grave damage to NLF forces. But the offensive had another, unintended consequence.

General Westmoreland had become the public face of the war. He was featured on the cover of Time magazine three times and was named 1965's Man of the Year. Time described him as "the sinewy personification of the American fighting man (who) directed the historic buildup, drew up the battle plans, and infused the men under him with his own idealistic view of U.S. aims and responsibilities."

In November 1967 Westmoreland spearheaded a public relations drive for the Johnson administration to bolster flagging public support. In a speech before the National Press Club he said that a point in the war had been reached "where the end comes into view." Thus, the public was shocked and confused when Westmoreland's predictions were trumped by Tet. The American media, which had been largely supportive of U.S. efforts, rounded on the Johnson administration for what had become an increasing credibility gap. Despite its military failure, the Tet Offensive became a political victory and ended the career of President Lyndon B. Johnson, who declined to run for re-election. Johnson's approval rating slumped from 48 to 36 percent.

As James Witz noted, Tet "contradicted the claims of progress... made by the Johnson administration and the military." The Tet Offensive was the turning point in America's involvement in the Vietnam War. It had a profound impact on domestic support for the conflict. The offensive constituted an intelligence failure on the scale of Pearl Harbor. Journalist Peter Arnett quoted an unnamed officer, saying of Bến Tre (laid to rubble by U.S. firepower) that "it became necessary to destroy the village in order to save it" (though the authenticity of this quote is disputed).^[160] According to one source, this quote was attributed to Major Booris of 9th Infantry Division.

Westmoreland became Chief of Staff of the Army in March, just as all resistance was finally subdued. The move was technically a promotion. However, his position had become untenable because of the offensive and because his request for 200,000 additional troops had been leaked to the media. Westmoreland was succeeded by his deputy Creighton Abrams, a commander less inclined to public media pronouncements.

On May 10, 1968, despite low expectations, peace talks began between the United States and the Democratic Republic of Vietnam. Negotiations stagnated for five months, until Johnson gave orders to halt the bombing of North Vietnam. The Democratic candidate, Vice President Hubert Humphrey, was running against Republican former vice president Richard Nixon.

As historian Robert Dallek writes, "Lyndon Johnson's escalation of the war in Vietnam divided Americans into warring camps... cost 30,000 American lives by the time he left office, (and) destroyed Johnson's presidency." His refusal to send more U.S. troops to Vietnam was seen as Johnson's admission that the war was lost. It can be seen that the refusal was a tacit admission that the war could not be won by escalation, at least not at a cost acceptable to the American people. As Secretary of Defense Robert McNamara noted, "the dangerous illusion of victory by the United States was therefore dead."