Ali Pasha was commander-in-chief of the Ottoman naval forces at the Battle of Lepanto on 7 October 1571. Selim had entrusted him with one of the most precious possessions of the Ottoman Sultans; the great 'Banner of the Caliphs'; a huge green banner heavily embroidered with texts from the Qur'an and with the name of Allah emblazoned upon it 28;900 times in golden letters. It was intended to provide an incentive for him and his men to do their best in battle.

Still quite young; like his counterpart Don Juan; he was more of a land soldier than a naval tactician; and his failure to keep his lines together and keep his individual squadrons from charging like cavalry units in a land battle allowed the Christian forces to penetrate his battle line in various places and to surround and defeat the isolated ships.

He was also somewhat of a firebrand and almost immediately sought the direct confrontation with his opposite number. His flagship; the galley Sultana; battled head-to-head with Don Juan's flagship La Real; was boarded and; after about one hour of bloody fighting; with reinforcements being provided to both sides by other galleys in their respective fleets; was captured.

Ali Pasha died at the hands of a Macedonian employed by the Venetians. He was shot in the head by a musket ball; fell to the deck and was beheaded by a zealous Spanish soldier. His head was then displayed upon a pike. This; and the capture of the Banner of the Caliphs by the Real; led to a collapse in Turkish morale; greatly contributing to their defeat in the Battle of Lepanto.