Taghrooda lost her unbeaten record when beaten by the late thrust of 8/1 chance Tapestry in the Darley Yorkshire Oaks.
The winner of the King George VI and Queen Elizabeth Stakes at Ascot on her previous start, Taghrooda and Paul Hanagan cruised past Tasaday and the weakening Venus De Milo into the lead effortlessly two furlongs out and everything looked to be going perfectly to plan.
But Ryan Moore was keeping something up his sleeve and pulled his mount out to throw down a challenge to the 1/5 favourite at the furlong-pole.
Taghrooda put up a decent fight and the pair pulled some way clear of the remainder of the field, but Moore's mount got the upper hand inside the final 50 yards and went on to score by half a length.
Winning trainer Aidan O'Brien, back at the track after the success of Australia in the Juddmonte International 24 hours earlier, said: "Things didn't go her way in the 1000 Guineas but ever since then she's stepped up and stepped up as the season has gone on.
"She was unlucky in the Irish Oaks. If you watch the replay of the race, you'll know what I mean. Look where the saddle ended up and she had to race like that for the whole of the race. I don't know how the saddle stayed on.
"Ryan has given her a peach today. She had Group One class over seven furlongs as a two-year-old, but she's a big filly and she's really been coming forwards with every run this season. She stays a mile and a half but I think she probably wants fast ground and we were lucky that the rain didn't come any more than it did.
"We'll look at France, we'll look at America, but fast ground is going to be important for her. The world is open to her now."
Moore, who picked up a four-day whip ban, added: "She looked one of the best two-year-olds last year and it has just taken a while for her to come to hand, but she ran a very good race the last day and has improved again today.
"We had nothing to lose. So it (tracking Taghrooda) seemed the best play we had.
"She had to battle. The other filly had plenty of time to come back if she was good enough. They are two very good fillies - they were seven lengths clear and I think that says it all really."
John Gosden said of Taghrooda: "No excuses, she's just been outstayed on the Knavesmire, which has happened to horses before.
"She was nice and relaxed through the race, he (Hanagan) gave her a lovely ride and it was a great race.
"The winner is just one of those fillies that has come to herself at this time of year. There was a lot of confidence behind her in the Irish Oaks and she had a problem with her tack, I believe.
"They've beaten the rest an awful long way, and she has just been outstayed.
"She's been in great form at home and barely had a race in the King George so there'll be no change to the plan. It will still be the Arc.
"They've always liked the winner, she has always been towards the top of their pecking order."
Saeed bin Suroor said of third-home Tasaday: "She ran a good race, and the softer the ground the better. She has a lot of options open to her over a mile and a half, both here and abroad."
The winner was installed by Sky Bet at 10/1 for the Prix de l'Arc de Triomphe, although it remains to be seen whether she will get the conditions O'Brien thinks she needs. Taghrooda was pushed out by the same firm from 4/1 to 8/1 for the Arc.