Dunham's and Forrest's march routes brought them into contact at Parker's Crossroads on December 31, 1862. Skirmishing began about 9:00 a.m., with Forrest taking an initial position along a wooded ridge northwest of Dunham at the intersection. Confederate artillery gained an early advantage. Dunham pulled his brigade back a half mile and redeployed, facing north. His Federals repelled frontal feints until attacked on both flanks and rear by Forrest's mounted and dismounted troops.
During a lull, Forrest sent Dunham a demand for an unconditional surrender. Dunham refused and was preparing for Forrest's next attack when Fuller's Union brigade arrived from the north and surprised the Confederates with an attack on their rear; Confederate security detachments had failed to warn of Fuller's approach. "Charge 'em both ways," ordered Forrest. The Confederates briefly reversed front, repelled Fuller, then rushed past Dunham's demoralized force and withdrew south to Lexington, Tennessee.