The Last Battle is the final battle, after which the whole of Arda would come to an end in it's current form. It is said that during that battle, the forces of Manwë and Melkor would meet, and Melkor would at last be utterly defeated.

We cannot say for certain, but it seems likely that the Last Battle would occur in Valinor. There is a reference in the Silmarillion, "Akallabêth", that says that Ar-Pharazôn and his men were imprisoned in the Caves of the Forgotten for daring to step foot on the shores of Aman. There they were doomed to remain until the Last Battle and the Day of Doom. Because the Caves are in the Undying Lands it would seem that the Last Battle would occur there as well.
Encyclopedia entry originally written by Nienna-of-the-Valar