Ferdinand Pizarro offered to admit Almagro and his troops into Cuzco, and to assign them a particular quarter of the city for their residence, if he would agree to defer the dispute about the boundaries, till intelligence were sent to the governor Don Francisco Pizarro, then at Lima, that he might have it in his power to endeavour to fall upon some means of settling the difference between them in an amicable manner. It has been said by some, that a truce was agreed upon between them on these principles; and that on the faith of this truce, Ferdinand Pizarro allowed all the soldiers and inhabitants to retire to their quarters for rest and refreshment, after their long fatigues, having spent several days and nights continually under arms, without time to sleep or even to take proper food. It is farther said, that Almagro, being informed of this circumstance, made a night attack on Cuzco, in which he was aided by a thick mist, so that he got possession of the defences without being observed. Ferdinand and Gonzalo Pizarro, awakened by the noise, flew to arms and defended their house, which was the first attacked, with the assistance of their servants; but as the enemy set it on fire in several places, they were forced to surrender. Next day, Almagro obliged the Cabildo to receive him as governor, and committed Ferdinand and Gonzalo Pizarro to prison. Several of his confidents even urged him to secure his conquest by putting the Pizarros to death; but he was chiefly dissuaded from this by the influence of Diego de Alvarado, who became responsible for them.

It has been said that Almagro violated the truce which he had agreed to with Ferdinand Pizarro, in consequence of the false representations of several Indians and Spaniards, who told him that Ferdinand had ordered all the bridges to be broken down, and was employed in fortifying Cuzco against him. In proof of this, it is alleged that when Almagro was advancing to attack the city, and saw the bridges remained uninjured, he said aloud that he had been imposed on. The governor Don Francisco Pizarro did not receive any account of these events at Cuzco for a good many days afterwards. As the Inca Manco Capac had fled with a large body of Peruvian warriors to the high mountains of the Andes, Almagro invested his brother the Inca Paul187 with the royal fringed fillet, appointing him nominal king of Peru.

Among those things which Don Francisco Pizarro had solicited from his majesty in reward for his services in the discovery and conquest of Peru, he particularly requested the grant in perpetuity to him and his descendants of twenty thousand Indians in a province named Atabillos188, with all the revenues, imposts, rights, and jurisdictions appertaining to them, together with the title of Marquis of that province. The king gave him the title of Marquis according to his desire; but in regard to the grant of Indians which he solicited, answered, that he must in the first place be better informed of the nature and circumstances of the country and its native institutions, before he could determine on that measure, but that Pizarro might rest assured of having every reasonable concession in his favour.

On receiving information of the insurrection of the Peruvians around Cuzco under Manco Capac, Francisco Pizarro, now Marquis, sent several detachments of troops to the assistance of his brother Ferdinand at Cuzco, sometimes ten or fifteen only together, according as circumstances or convenience occurred, not believing the state of affairs to be so hazardous as it was in reality189. The Peruvians having accurate information of the march of these detachments, occupied the difficult passes of the mountains with parties of warriors, and succeeded on several occasions to defeat these small bodies, most of whom were slain. One considerable reinforcement of seventy horsemen, was sent by the Marquis from Truxillo and San Miguel under the command of Diego Pizarro, who was waylaid by the Peruvians at a difficult pass called the mountain of Parios, about fifty leagues from Cuzco, where he and his men were all slain. One Gonzalo de Tapia, who was brother-in-law to the Marquis, who went with a body of eighty horsemen, was likewise defeated and slain; and two other captains, named Morgoveio and Gaete, while endeavouring to pass the mountains to the relief of Cuzco, were treated in the same manner. Of all these different detachments, scarcely one man escaped, so that those who followed knew nothing of what happened to those who went before them. The enemy always attacked the Spaniards while engaged in marching through some deep and narrow valley among the mountains, occupying both ends of the valley by strong bodies of warriors, and rolling down great stones and masses of rock from the steep and high mountains on both sides of the valley, destroyed our men and horses in a miserable manner, often without fighting. In this way they at different times destroyed more than three hundred soldiers, and made themselves masters of their arms, besides acquiring considerable and valuable plunder in gold and jewels and silk dresses. Not knowing the fate of the former detachments, Francisco de Godoy was sent with a reinforcement of eighty men; but falling in with two of those who had belonged to the detachment under Gaete, who had escaped, he learnt from them what had happened, on which he immediately endeavoured to retreat from the mountain passes, in which he had considerable difficulty, as the Indians had already occupied the defiles in his rear. He made good his retreat however, followed and harassed by the Indians for more than twenty leagues, sometimes attacking him in the rear and at other times in the van, and at length got safe to Lima with much difficulty. About the same time the captain Diego de Aguero arrived at that place with some other Spaniards, who had saved themselves from the Indians, who had endeavoured to massacre them at their country residences.

The marquis sent Pedro de Lerma at the head of eighty cavalry to drive away a numerous army of Peruvian warriors who had invaded the lower country in pursuit of Aguero. Lerma fought against these troops of the Inca a whole day, and at last forced them to take refuge in a strong place among steep rocks, where the Spaniards surrounded them. In this battle, Lerma lost several of his teeth, and several of his men were wounded, but none killed. The Indians were so exceedingly crowded together among the rocks to which they had retired, that they were unable to use their arms, insomuch that the Spaniards might probably have put an end to the war on this occasion, if the marquis had not sent them an order to retire. On seeing the retreat of their enemies, the Indians returned thanks to their gods for their escape from so great danger, and took post on a high mountain near the city of Lima on the other side of the river, whence they harassed the Spaniards by frequent skirmishes and attacks. The commander of these Indians was named Tyzogopangui, who had along with him one of the brothers of the Inca, whom the marquis had sent along with Gaete190. While the Peruvians remained in the neighbourhood of Lima, skirmishing every day with the Spaniards, it often happened that the natives who were in the service of the Spaniards, who were called Yanacones, went during the day to their friends in the mountains, who gave them provisions, and returned at night to their masters.

As he was in a manner besieged by so large a force of the enemy in Lima, the marquis concluded that his brothers and all the other Spaniards in Cuzco had certainly been slain, and that the insurrection was so general that the inhabitants of Chili had likewise destroyed Almagro and his army. In this emergency, both that his Spaniards might not expect to save themselves by sea, and to convince the Peruvians that he had no intention to leave the country, he sent off all his ships to Panama. At the same time he sent notice to the Viceroy of New Spain and all the other governors in America and the West Indies of the perilous state of affairs in Peru, intreating them to send him assistance. In these letters, he is said not to have shewn his usual firmness, and it is reported that this was occasioned by the earnest solicitations of many of those around him. He sent orders at the same time to the commandant of Truxillo to abandon that place, and to come to his assistance with all the armed men and horses he could collect, sending off the women and children and all their valuable effects to the province of Tierra firma. But before the execution of these orders, the captain Alfonso de Alvarado arrived at Truxillo with the troops he had taken along with him for the conquest of the province of the Chachapoyas, whence he had been recalled by orders from the marquis. Leaving a part of his troops for the defence of Truxillo, Alvarado marched with the rest to Lima, where the marquis appointed him lieutenant-general of his army, in place of Don Pedro de Lerma, who had hitherto enjoyed that office. This gave great offence to Lerma, and was the occasion of his revolt, as shall be mentioned in the sequel.