The waters off Fair Isle, in the Sunset Sea west of the westerlands.
Who fought
The royal fleet under Stannis Baratheon against the Iron Fleet under Victarion Greyjoy
Outcome
Victarion Greyjoy's Iron Fleet was defeated and scattered by Stannis Baratheon's royal fleet, breaking ironborn naval power and clearing the way for the siege of Pyke.
The ironborn had burned a royal fleet at anchor and thought the war as good as won, until Stannis Baratheon caught their own fleet in open water and answered fire with iron.
Commanders
Stannis Baratheon
Victarion Greyjoy, Lord Captain of the Iron Fleet
What happened
Balon Greyjoy's rebellion opened with a stroke that stunned the mainland: his brother Victarion led the Iron Fleet against Lannisport under cover of night, burning the Lannister war-fleet at its own moorings before the westermen had so much as manned the walls. For a few weeks it seemed the ironborn might make good on Balon's boast that the sea itself belonged to the krakens.
King Robert answered by sending the one brother he trusted more with ships than with courts: Stannis Baratheon, given command of the royal fleet, sailed to hunt down what remained of Victarion's strength before it could reach the safety of the Iron Islands. He found it in the waters off Fair Isle, and gave the Iron Fleet no second chance to strike from the dark. In open battle, ship against ship, iron discipline told against the raiders' speed and daring, and Victarion's fleet was broken and scattered.
The defeat cost the ironborn the one advantage their strategy depended on — the sea itself — and opened the way for Stannis's fleet to blockade and, before the year was out, help storm Pyke. The maesters note, not without a certain grim satisfaction, that a war begun by burning ships was ended by the loss of them.
In the timeline
SourcesACOK · TheonTWOIAF · The Reign of Robert I
Explore further
Commanders
Where it was fought
Houses in the field
What was The Battle of Fair Isle?
The ironborn had burned a royal fleet at anchor and thought the war as good as won, until Stannis Baratheon caught their own fleet in open water and answered fire with iron.
Is The Battle of Fair Isle from the books or the show?
Book canon. This entry follows George R. R. Martin's novels and histories, and notes where the television series diverges rather than following it.