On June 13, the leaders of the besieging colonial forces learned that the British generals in Boston were planning to occupy the unoccupied hills around Boston. In response to this intelligence, 1,200 colonial troops under the command of William Prescott stealthily occupied Bunker Hill and Breed's Hill on the night of June 16–17, constructed an earthen redoubt on Breed's Hill, and built lightly fortified lines across most of the Charlestown Peninsula. The British mounted an attack against them the next day. After two of their assaults on the Colonial lines were repulsed with significant casualties, the British finally captured the positions on the third assault after the defenders in the redoubt ran out of ammunition. The Colonial forces retreated to Cambridge over Bunker Hill, suffering their most significant losses on Bunker Hill.

While the result was a victory for the British, they suffered their greatest losses of the entire war: over 800 wounded and 226 killed, including a notably large number of officers. Their immediate objective (the capture of Bunker Hill) was achieved, but did not significantly alter the state of siege. It also demonstrated that relatively inexperienced Colonial forces were willing and able to stand up to well-trained troops in a pitched battle.

In spite of his success, Arnold was passed over for promotion by the Continental Congress while other general officers took credit for his many accomplishments. Charges of corruption were brought by political adversaries, and Congress investigated his accounts, finding he owed it money after he had spent much of his own money on the war effort. Frustrated, bitter, and strongly opposed to the new American alliance with France, Arnold decided to change sides in 1779. In July 1780, he sought and obtained command of West Point in order to surrender it to the British. Arnold's scheme was exposed when American forces captured British Major John André carrying papers that revealed the plot. Upon learning of André's capture, Benedict Arnold escaped down the Hudson River to the British sloop-of-war Vulture, narrowly avoiding capture by the forces of General Washington, who was arriving the same day to inspect West Point and to meet and dine with Arnold.

Arnold received a commission as a brigadier general in the British Army, and led British forces at Blanford, Virginia, and Groton, Connecticut, before the war effectively came to an end with the Siege of Yorktown. In the winter of 1782, Arnold moved to London with his second wife, Margaret "Peggy" Shippen Arnold. He was well received by King George III and the Tories but frowned upon by the Whigs. In 1787, he entered into mercantile business with his sons Richard and Henry in Saint John, New Brunswick, but returned to London to settle permanently in 1791, where he died ten years later.