On Sunday January 5, 1975, at 9:27 p.m. Australian Eastern Standard Time, the Tasman Bridge was struck by the bulk ore carrier Lake Illawarra, bound for the Electrolytic Zinc Company with a cargo of 10,000 tons of zinc concentrate (AusStats, 2002). It caused two pylons and three sections of concrete decking, totalling 127 metres (417 ft), to fall from the bridge and sink the ship. Seven of the ship's crewmen were killed, and five motorists died when four cars drove over the collapsed sections before the traffic was stopped. A major press shot showed a 3,000km old Holden Monaro GTS, along with an older EK Holden stationwagon, perched balancing on the ledge.

The depth of the river at this point (35 metres (115 ft)) is such that the wreck of Lake Illawarra lies on the bottom, with concrete slab on top of it, without presenting a navigation hazard to smaller vessels.

The breakage of an important arterial link isolated the residents in Hobart’s eastern suburbs – the relatively short drive across the Tasman Bridge to the city suddenly became a 50 kilometre (31 mi) journey via the estuary's next bridge at Bridgewater. The only other vehicular crossing within Hobart after the bridge collapsed was the Risdon Punt, a cable ferry which crossed the river from East Risdon and Risdon, some five kilometres upstream from the bridge. However, it was totally inadequate, carrying only eight cars on each crossing, and although ferries provided a service across the Derwent River, it was not until December 1975 that a single lane Bailey bridge was opened to traffic, thereby restoring some connectivity.