He dropped thousands of yards into what are believed to be uncharted waters about 500 miles north-east of Australia on Sunday night, ending his hopes of becoming the first balloonist to circumnavigate the globe non-stop.
An Australian yacht, the Atlanta, picked him up and reported he was in good spirits.
He had been hoping to land later this week in Argentina, from where he took off in Solo Spirit, on 8 August. On Saturday, he passed over the coast of Western Australia above Geraldton after crossing the Indian Ocean. He spent the weekend crossing the continent in record time, helped by strong winds that sped him at up to 140 miles an hour.
But on Sunday night, after Fossett left Australia over Gladstone, in Queensland, disaster struck. Reports reaching Australia's search and rescue centre in Canberra yesterday indicated that Solo Spirit was struck by lightning as it headed over the Coral Sea. He was lucky it happened so close to Australia and not in the middle of the Pacific, where he could have been stranded for days.
The Canberra rescue centre picked up emergency calls from two beacons at 2am yesterday, almost as soon as the balloon hit the water. Brian Hill, of the rescue centre, said: "We were able to direct the aircraft and ships to within six kilometres of where he was."
The Atlanta, skippered by Laurie Piper, was on the way to Australia when a radio ham in Vanuatu, the archipelego north of the French Pacific territory of New Caledonia, raised the alert.
The Atlanta was pulled into an international rescue effort that included an Australian air force Hercules and two Orion aircraft, a commercial container ship, the Papuan Chief, French military aircraft and a New Zealand tanker.
The French aircraft dropped a raft with food and water to Mr Fossett, to which he transferred yesterday from the precariously floating gondola of his balloon.
After boarding the Atlanta, he was expected to be transferred to the New Zealand ship, which is to take him to Townsville, in north Queensland, later this week. The Australian Hercules and Orions were circling over him late yesterday.
At the Solo Spirit's mission control centre in St Louis, Missouri, Marie Singleman, one of the staff monitoring its journey, said yesterday: "He's got to be scared to death. Steve made arrangements before the flight that if two of his emergency locators went off, then he was in real trouble. I just breathed a sigh of relief when I heard he'd been found. I feel the weight of the world is off my shoulders. I was terrified."
The journey was not all in vain. Before the crash, Mr Fossett, 54, a stockbroker from Chicago, became the first person to cross the Indian and South Atlantic Oceans by balloon. It is not known what will happen now to the prize money of $1 million that Budweiser, the brewer, had offered if he had completed the journey successfully. The money was to be split equally between Mr Fossett and the Washington University in St Louis.