After the stand at Oivi the combined Papuan/Australian force fell back to Deniki. Then, as the Japanese did not immediately take Kokoda, Lt Col Owen reoccupied it on 28 July 1942. He expected to be reinforced by air. Two Allied transport aircraft did circle the field but, unsure if the Japanese were present, they did not land.

Owen had 140 men, mostly 39th Battalion but including at least 29 Papuan from the Papuan Infantry Battalion (PIB) and the Royal Papuan Constabulary (RPC). He placed them in an arc around the northern end of the plateau on which the Kokoda administration buildings stood. His opponent was Captain Ogawa, commander of No. 1 Company of the first battalion of 144 Regiment. Both Ogawa and Owen were to be killed in the engagement.

Ogawa's force outnumbered the Australians. It was reinforced with Orokaiva scouts, who had sided with the Japanese. There was also a platoon of engineers, a detachment from the battalion's machine gun company and one 70mm gun.

Ogawa began his attack at 2.30 on the morning of 29 July. Approaching from the north his men were halted by the Australians on the plateau where Owen was shot early in the fighting. Ogawa then sent a platoon out to the west and another to the east to feel for the Australian flanks. At this time the Japanese artillerymen found the correct range and their shells began inflicting casualties on Owen's force. The mortal wounding of Owen, the enemy to the flank, combined with accurate artillery fire, caused the Australian line to collapse about an hour after the fight commenced. Major Watson of the Papuan Infantry Battalion assumed command and ordered the force to make for Deniki. A fortunate mist obscured the moonlight and concealed the retreat. The Australians lost seven killed and six wounded at Kokoda. The Japanese lost 12 killed and 26 wounded.

Owen's decision to try to hold Kokoda was correct. New Guinea Force was hoping to fly in a company of infantry each day. All day on 29 July a company of 49th Battalion was sitting by the runway at Port Moresby waiting to be airlifted to Kokoda. This potential doubling of Owen's force did not occur as communications between Port Moresby and Kokoda were not functioning. Had it occurred the outcome of the campaign may well have been different. The main body of the Japanese was still at Sanananda, six days march away. It could easily have transpired that by the time Ogawa attacked with one company there were two Australian companies present and by the time the Japanese could attack Kokoda with a full battalion there could have been two Australian battalions defending it. If on 29 July the 39 Australian Infantry Battalion and the Papuan elements, had held Kokoda airstrip, there may not have been a campaign in the Owen Stanley Range.