The Union Navy's strategic goals were: cut off the Confederacy's overseas trade with a tight blockade, and divide it in two by controlling the Mississippi River.

By 1863, large blockade-runners could only operate in and out of Wilmington, North Carolina; Charleston, South Carolina; Mobile, Alabama; and Galveston, Texas. Confederate ocean trade had dropped to one-third of its original level, and the Confederacy began running out of clothing, weapons, and other supplies.

In an attempt to counteract the Union Navy, especially the ironclads, the Confederates introduced the torpedo, which became very controversial. Before the Civil War, explosive devices had been floated towards enemy ships, but these could be seen on the surface allowing time for reaction. Torpedoes, on the other hand, remained hidden and stationary below the water's surface, which provoked complaints from the North that no civilized country would use an "invisible" weapon.

The Battle of Mobile Bay was fought on August 5, 1864 at the mouth of Mobile Bay – which was defended by two Confederate fortified positions (Fort Morgan and Fort Gaines), and a torpedo field (in modern terms, a minefield) that created a single narrow channel for blockade runners to enter and exit the bay.

Commanding the Union forces was Admiral David Farragut, while Admiral Franklin Buchanan led the Confederate fleet.

The biggest challenge for Farragut was entering the bay. With eighteen vessels, he commanded far greater firepower than the Confederate fleet of four. The Union fleet suffered the first major loss when the powerful monitor USS Tecumseh was mortally damaged by a torpedo. It took just two minutes to go down, and only 21 of its 114-man crew escaped death. Under fire from both the Confederate fleet and Fort Morgan, Farragut had to choose between retreating or risking the minefield. He then issued his famous order, "Damn the torpedoes! Full speed ahead!"

Farragut took his flagship through the minefield safely, followed by the rest of the fleet. When the Union fleet reached the bay, they defeated the Confederate flotilla led by the giant ironclad CSS Tennessee. Over the next three weeks, a combined operation by the Navy and one Army division captured the forts defending the bay. Although the city of Mobile remained in Confederate hands, the last blockade-running port on the Gulf Coast east of the Mississippi was shut down.