For the third World Cup in 1938, the tournament stayed in Europe with the competition to be held in France, the home country of the World Cup's founder Jules Rimet. Thirty-seven countries entered the tournament, although ten withdrew without playing a qualifying match. The qualifying competition produced sixteen qualifiers who would again compete in a straight knockout tournament, as in 1934. Only fifteen teams would be able to play, however, as Austria were forced to withdraw having been annexed by Germany earlier in 1938.
Beneficiaries of Austria's forced withdrawal were Sweden, who received a bye into the quarter-finals. Seven first round matches were played, and produced some interesting scorelines. Brazil were expected to beat Poland and did so, but an incredible scoreline of 6-5 after extra-time was certainly not expected. Cuba produced a massive shock by beating Romania after a replay, and reigning champions Italy surprisingly required extra-time to squeeze past debutants Norway.
With no other real surprises in the first round, the quarter-finals saw a fascinating match-up between hosts France, who had beaten Belgium in their first match, and champions Italy. After falling behind early, France found an equaliser but had no answer to Silvio Piola's two second half goals and became the first hosts to fail to win the trophy. In the other quarter-finals, Cuba could not reproduce their shock form of the first round as they lost 8-0 to Sweden, Hungary edged past Switzerland and Brazil came from behind to beat 1934 finalists Czechoslovakia in a replay.
Hungary crushed Sweden 5-1 in their semi-final, and would meet the defending champions in the final as Italy held off a fightback from Brazil to win the other semi-final 2-1, although Brazil eased their disappointment by beating Sweden 4-2 to claim third place.
In the final, Italy were hot favourites to become the first country to retain the World Cup against Hungary, and they took a sixth minute lead through Gino Colaussi. Hungary equalised two minutes later through Pal Titkos, but Piola put Italy back in front on sixteen minutes. Colaussi's second goal gave the Italians a commanding 3-1 half-time lead, but Hungary were not finished. Gyorgy Sárosi scored with twenty minutes remaining to cut the lead to 3-2 and leave Italy hanging on to their lead, but with five minutes left Piola scored his second of the game to seal a 4-2 victory and a second successive World Cup for Italy.