Charlie's Country begins with the daily routine of Charlie, the film's protagonist. A Yolngu man in his sixties, Charlie lives in a remote Aboriginal Australian "homeland" or "outstation" community on Arnhem Land in the Northern Territory. A sign at the film's opening shows that liquor possession in the community is restricted to permit-holders.
Charlie lives alone in a makeshift shelter and spends much of his time sitting on the ground before a smoldering fire. He collects an allowance of cash from an office and immediately gives much of it away to other people in the community. For food he stands in line at a buffet kitchen. When he passes the police station, he shouts about the white colonial impact of bringing alcohol, "ganja," and tobacco to his people, but the white officers can't understand him when he speaks Yolngu Matha. Charlie jokes with Luke, one of the officers, and they cheerfully refer to each other as "you white bastard" and "you black bastard." A doctor comes to visit and reminds Charlie that his lungs have been harmed by years of smoking. Charlie wants to have his teeth looked at but is told he will have to wait for a dentist.
One day, Charlie looks after a man in a wheelchair who has kidney problems. They discuss the tragedy of dying in the hospital in the city of Darwin, away from the community. Having run out of his allotted cash, Charlie goes hungry. Old Lulu reminds Charlie that the bush is like a natural supermarket, full of food. He and his friend Pete shoot a wild buffalo in the bush, and they look forward to eating the "bushmeat." However, the police confiscate their guns and the animal. Charlie then crafts a spear that he intends to use for hunting. Luke drives by and takes the spear as well on the grounds that Charlie could hurt someone with it. Meanwhile, the man in the wheelchair's health worsens. With tears in his eyes, Charlie watches him being loaded into a helicopter bound for the hospital.
In retaliation for confiscating his hunting weapons, Charlie steals a cop car from outside the station. He picks up Pete and tells him they are going to live in the bush, in the traditional way. They don't get far before the petrol runs out in the car. Neither man seems disappointed. They part ways, Pete returning to the community, Charlie going on foot into the bush.
With few belongings, Charlie sets up a palm-frond shelter and begins hunting. He grows skinnier and skinnier. Eventually he catches a barramundi fish and eats it, picking the white meat from the ashes in which it cooked. He is elated, but soon heavy rains put out his fire and dampen his spirits. Charlie enters a weakened state, spending most of his time lying on the ground in puddles. He thinks more and more about when he was a boy and went to Sydney to dance before the Queen of England at the opening of the Opera House. Eventually Pete finds Charlie, who is on the point of death.
After regaining his health at the hospital in Darwin, Charlie visits the man in the wheelchair's bedside. He weeps at the injustice of another member of the community dying without loved ones around. He discharges himself from the hospital and goes to an ATM, where he withdraws cash. He has nearly four thousand dollars in the bank. A woman comes up to him and asks him to buy her "grog" (beer), which she is banned from doing herself. Charlie obliges and begins living with the woman and several other homeless Aboriginal people. They live at the edge of a park, hiding from the police in the bushes. They are banned from drinking, but Charlie risks criminal penalty by providing them alcohol. Pete and Lulu visit Charlie there and scold him from bringing dishonor to himself and his people.
Luke shows up one day unexpectedly. Charlie smashes the windshield of his police cruiser. Luke gets out and punches Charlie, calling racial slurs. In court, Charlie doesn't show remorse for his crimes. He goes to prison for several months. There they shave off his long hair and beard. His spirit is broken as he goes through the same monotonous routine each day.
Upon release, Charlie returns to his community, vowing to his parole officer that he will never drink again. While sitting before his fire, Charlie is visited by Pete and Lulu. Lulu asks Charlie to teach the young men how to dance in the traditional way. Charlie is resistant to the idea until he learns that Bobby, another dancer in the community, has gone to the hospital in Darwin. With no one else to pass on the traditional knowledge, Charlie happily agrees. The film ends with him teaching the young men how he performed for the Queen when he was a boy. In body paint, he leads them in the rhythmic and mesmerizing routine around a roaring fire.