Liverpool began their attempt to win a third successive European Cup with a 2–0 defeat at Nottingham Forest on 13 September 1978. Garry Birtles scored in the first half, but Colin Barrett's goal three minutes from time substantially changed the task awaiting the holders at Anfield.
The first-round draw had paired Europe's champions with England's. Brian Clough's Forest had taken the league title and beaten Liverpool in the League Cup final replay the previous season. Liverpool arrived at the City Ground with five wins from five league games in the new campaign, including a 7–0 victory over Tottenham Hotspur.
Forest prevented Liverpool from establishing their usual midfield control. John McGovern and Ian Bowyer restricted Graeme Souness and Terry McDermott, and Birtles put the home side ahead after 26 minutes. Liverpool reached half-time a goal down.
Paisley replaced McDermott with David Johnson early in the second half, adding another forward. Liverpool improved, with Kenny Dalglish providing their clearest threat: Peter Shilton pushed a shot from him over the bar. But Forest's central defenders, Larry Lloyd and Kenny Burns, continued to restrict the visitors' opportunities.
The second goal came in the 87th minute. Birtles crossed from the left, Tony Woodcock headed the ball down and Barrett met it on the volley. Liverpool had been seeking an equaliser; Forest instead doubled the deficit they would have to overturn.
They now had two goals to recover. A fortnight later, Forest held Liverpool to a goalless draw at Anfield. The damage done at the City Ground proved sufficient to end the champions' defence at the first hurdle.