The B.1.617.2 (Delta) variant of severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) was first identified in the state of Maharashtra in late 2020 and spread throughout India, outcompeting pre-existing lineages including B.1.617.1 (Kappa) and B.1.1.7 (Alpha). In vitro, B.1.617.2 is sixfold less sensitive to serum neutralizing antibodies from recovered individuals, and eightfold less sensitive to vaccine-elicited antibodies, compared with wild-type Wuhan-1 bearing D614G. Serum neutralizing titres against B.1.617.2 were lower in ChAdOx1 vaccinees than in BNT162b2 vaccinees. B.1.617.2 spike pseudotyped viruses exhibited compromised sensitivity to monoclonal antibodies to the receptor-binding domain and the amino-terminal domain. B.1.617.2 demonstrated higher replication efficiency than B.1.1.7 in both airway organoid and human airway epithelial systems, associated with B.1.617.2 spike being in a predominantly cleaved state compared with B.1.1.7 spike. The B.1.617.2 spike protein was able to mediate highly efficient syncytium formation that was less sensitive to inhibition by neutralizing antibody, compared with that of wild-type spike. We also observed that B.1.617.2 had higher replication and spike-mediated entry than B.1.617.1, potentially explaining the B.1.617.2 dominance. In an analysis of more than 130 SARS-CoV-2-infected health care workers across three centres in India during a period of mixed lineage circulation, we observed reduced ChAdOx1 vaccine effectiveness against B.1.617.2 relative to non-B.1.617.2, with the caveat of possible residual confounding. Compromised vaccine efficacy against the highly fit and immune-evasive B.1.617.2 Delta variant warrants continued infection control measures in the post-vaccination era.