After being ambushed by Sandinista forces at the Battle of San Fernando, Major Oliver Floyd's expedition of American Marines and Nicaraguan Provisional Guardsmen continued its advance into enemy-held territory in northern Nicaragua.

"[7] Major Floyd's Marine and Provisional Guard expedition eventually reached the area one mile southeast of Santa Clara, where they were attacked by a force of between 60 and 120 (possibly up to 150[8]) Sandinista insurgents who were armed with two machine guns.

However, Augusto César Sandino would later admit to losing up to 60 men killed and wounded during the action (although this number may include the casualties from the air raid prior to the battle).

[13] The clash at Santa Clara, along with the previous battles at Ocotal and San Fernando (both of which also took place in July 1927) convinced Sandino to alter his tactics.

"[14] After the Battle of Santa Clara, the Sandinistas fell back to "the jungles around El Chipote mountain," which was "ideal country for guerrilla warfare.