In 1880 in Big Whiskey, Wyoming, two cowboys—Quick Mike and "Davey-Boy" Bunting—attack and disfigure prostitute Delilah Fitzgerald with a knife after she laughs at Quick Mike's small penis. As punishment, local sheriff "Little Bill" Daggett orders the cowboys to bring several horses as compensation for the brothel owner, Skinny Dubois. The rest of the prostitutes are outraged by the sheriff's decision, and offer a $1,000 reward to anyone who kills the two cowboys. Davey delivers the fine of the horses to Skinny and offers a pony to Delilah herself. Before she can say whether she will accept or refuse the offer the other prostitutes scream and throw horse dung and rocks at Davey until he leaves with the pony.
In Hodgeman County, Kansas, a boastful young man calling himself the "Schofield Kid" visits the pig farm of William Munny, seeking to recruit him to help kill the cowboys and claim the reward. In his youth, Munny was a notorious outlaw and murderer, but he is now a repentant widower raising two children. Munny refuses to help, telling the Kid that his wife cured him of "drink and wickedness." After the Kid leaves Munny recognizes that his farm is failing and jeopardizing his children's future, so he reconsiders. Firing a pistol at a tin can, he finds that his skills have atrophied considerably, so Munny recruits his friend Ned Logan, a member of his old gang, and they catch up with the Kid. They quickly discover that the Kid is nearsighted to the point that he won't be much help in killing anyone, but Munny insists that he will get his share of the reward.
Back in Wyoming, British-born gunfighter "English Bob", an old acquaintance and rival of Little Bill, is also seeking the reward. He arrives in Big Whiskey with his biographer W. W. Beauchamp, a writer of dime store novels who naively believes Bob's exaggerated tales of his exploits. Enforcing the town's anti-gun law, Little Bill and his deputies disarm Bob and Bill beats him savagely, hoping to discourage other would-be assassins from attempting to claim the bounty.
That night in the jail Little Bill reads Beauchamp's book about English Bob, "The Duke of Death", and debunks many of the romantic notions Beauchamp has about the wild west. To show Beauchamp how hard it really is to kill someone, Bill hands him a loaded gun and puts the jail's keys on the table, telling him that all he has to do is kill him and then Beauchamp and English Bob can escape. Beauchamp can't do it, but suggests giving the gun to English Bob. Little Bill tells him to give the gun to Bob, and for a moment it looks like there will be a shoot-out, but Bob refuses to take the gun. Bill shows Bob that it was in fact loaded by unloading the gun in front of him. The next morning Bill puts English Bob on the stage and runs him out of town, but Beauchamp decides to stay and write about Little Bill.
Munny, Ned, and the Kid arrive in town during a rainstorm, and head into the saloon. While Ned and the Kid meet with the prostitutes upstairs (accepting "advances"), a feverish Munny is sitting alone in the saloon when Little Bill and his deputies confront him. Not realizing Munny's identity but guessing he is here for the bounty, Bill beats him up and kicks him out of the saloon for carrying a pistol. Ned and the Kid escape through an upper story back window, and the three regroup at a barn outside town, where they nurse Munny back to health. While recovering Munny has a conversation with Delilah, where he refuses to accept an "advance" not because he finds her scars ugly, but because he is married. When Delilah tells them this the other prostitutes refuse to believe Munny was ever married.
A few days later, the trio ambush Davey Bunting in front of his co-workers. Ned shoots Davey's horse out from under him, which breaks his leg when the horse falls on it, but Ned loses his nerve while Davey tries to crawl behind cover; Munny take's Ned's rifle and shoots Davey through the gut. Dying, Davey cries out for water, and Munny assures the other cowboys that they won't shoot. Ned takes his rifle back and leaves for home, saying he can no longer kill, but Munny insists that he will get his share of the bounty.
Munny and the Kid then head towards the cowboys' ranch, where the Kid ambushes Quick Mike in an outhouse and kills him. After they escape, a distraught Kid confesses he had never killed anyone before and renounces the life of a gunfighter. When one of the prostitutes arrives to give them the bounty, they learn that Ned has been captured and whipped to death by Little Bill, but not before revealing Munny's identity. When he hears of Ned's death, Munny takes the Kid's bottle of whisky and begins drinking. Munny tells the Kid to go back to Kansas, give Ned's wife Ned's share of the reward, and go and buy spectacles; Munny takes the Kid's gun and the bottle, and heads back to Big Whiskey to take revenge on Little Bill.
After dark and in heavy rain, Munny arrives and sees Ned's corpse displayed in a coffin outside the saloon. He drops the empty whisky bottle and heads inside. In the saloon Little Bill is assembling a posse to pursue Munny and the Kid. Munny announces his presence and holds a double-barreled shotgun on the crowd. He asks who owns the Saloon, and when Skinny responds he shoots him. When Little Bill protests that he just shot an unarmed man, Munny says, "He should have armed himself if he's going to decorate his saloon with my friend", and that Little Bill is next. Little Bill bravely instructs the posse to kill Munny as soon as he has fired the remaining shotgun barrel. The shotgun misfires, and everyone draws their pistols. In the ensuing shootout, the deputies panic and miss all of their shots. Munny shoots Bill and all of the deputies shooting at him before calmly ordering all of the survivors to leave the saloon. He picks up and starts loading Ned's rifle. Beauchamp struggles out from beneath the bodies of the deputies, and introduces himself to Munny as a writer, asking questions about who he shot first and why. Munny claims he doesn't know why he shot them in the order he did, claiming, "I've always been lucky when it comes to killing folks." He then threatens Beauchamp, who leaves.
Little Bill isn't dead yet, and starts to bring his gun around, but Munny spots the movement and disarms him. Little Bill says he doesn't deserve to die like this, and he'll see Munny in hell. Munny simply responds "yeah," and finishes him with Ned's rifle. Munny then leaves Big Whiskey, warning the townsfolk that he will return for more vengeance if Ned is not buried properly or if any other prostitutes are harmed. A deputy with a rifle waiting outside the saloon doesn't dare to take a shot at Munny, and neither does the friend urging him to shoot. Munny rides off into the rain and darkness.
During the epilogue, a title card states that Munny and his children leave the pig farm and are rumored to have moved to San Francisco, where he prospered in dry goods.