The attacks on Shaista Khan and Surat enraged Aurangzeb. In response he sent the Rajput Mirza Raja Jai Singh I with an army numbering around 15,000 to defeat Shivaji. Throughout 1665, Jai Singh's forces pressed Shivaji, with their cavalry razing the countryside, and their siege forces investing Shivaji's forts. The Mughal commander succeeded in luring away several of Shivaji's key commanders, and many of his cavalrymen, into Mughal service. By mid-1665, with the fortress at Purandar besieged and near capture, Shivaji was forced to come to terms with Jai Singh.

In the Treaty of Purandar, signed between Shivaji and Jai Singh on 11 June 1665, Shivaji agreed to give up 23 of his forts, keeping 12 for himself, and pay compensation of 400,000 gold hun to the Mughals. Shivaji agreed to become a vassal of the Mughal empire, and to send his son Sambhaji, along with 5,000 horsemen, to fight for the Mughals in the Deccan as a mansabdar.

In 1666, Aurangzeb summoned Shivaji to Agra (though some sources instead state Delhi), along with his nine-year-old son Sambhaji. Aurangzeb's plan was to send Shivaji to Kandahar, now in Afghanistan, to consolidate the Mughal empire's northwestern frontier. However, in the court, on 12 May 1666, Aurangzeb made Shivaji stand behind mansabdārs (military commanders) of his court. Shivaji took offence and stormed out of court, and was promptly placed under house arrest under the watch of Faulad Khan, Kotwal of Agra.

Shivaji's position under house arrest was perilous, as Aurangzeb's court debated whether to kill him or continue to employ him, and Shivaji used his dwindling funds to bribe courtiers to support his case. Orders came from the emperor to station Shivaji in Kabul, which Shivaji refused. Instead he asked for his forts to be returned and to serve the Mughals as a mansabdar; Aurangzeb rebutted that he must surrender his remaining forts before returning to Mughal service. Shivaji managed to escape from Agra, likely by bribing the guards, though the emperor was never able to ascertain how he escaped despite an investigation. Popular legend says that Shivaji smuggled himself and his son out of the house in large baskets, claimed to be sweets to be gifted to religious figures in the city.

After Shivaji's escape, hostilities with the Mughals ebbed, with Mughal sardar Jaswant Singh acting as intermediary between Shivaji and Aurangzeb for new peace proposals. During the period between 1666 and 1668, Aurangzeb conferred the title of raja on Shivaji. Sambhaji was also restored as a Mughal mansabdar with 5,000 horses. Shivaji at that time sent Sambhaji with general Prataprao Gujar to serve with the Mughal viceroy in Aurangabad, Prince Mu'azzam. Sambhaji was also granted territory in Berar for revenue collection. Aurangzeb also permitted Shivaji to attack the decaying Adil Shahi; the weakened Sultan Ali Adil Shah II sued for peace and granted the rights of sardeshmukhi and chauthai to Shivaji.