In 1881, in Big Whiskey, Wyoming, a cowboy named Quick Mike slashes prostitute Delilah Fitzgerald's face with a knife, permanently disfiguring her after she laughs at his small penis. As punishment, sheriff "Little Bill" Daggett orders Mike and his associate who was with him at the brothel, Davey Bunting, to turn over several of their horses to Delilah's employer, Skinny DuBois, for his loss of revenue. Outraged, the prostitutes offer a $1,000 bounty for the cowboys' deaths.
In Hodgeman County, Kansas, a boastful young man visits Will Munny's hog farm. He calls himself the "Schofield Kid" and claims to be an experienced bounty hunter looking for help pursuing the cowboys. Formerly a notorious outlaw and murderer, Will is now a repentant widower raising two children. After initially refusing to help, Will realizes that his farm is failing and that his children's future is in jeopardy. He recruits his friend Ned Logan, another retired outlaw, and they catch up with the Kid, who, they discover, is severely near-sighted.
Back in Big Whiskey, British-born gunfighter "English" Bob, an old acquaintance and rival of Little Bill, seeks the bounty. He arrives in town with his biographer W. W. Beauchamp, who naively believes Bob's tall tales. Enforcing the town's anti-gun law, Little Bill, with his deputies, disarms Bob and beats him savagely to discourage others from attempting to claim the bounty. Bob, humiliated, is banished from town the next morning, but Beauchamp stays out of a fascination with the Sheriff, who debunks many of the romantic notions Beauchamp has about the Wild West. Little Bill explains to Beauchamp that the best attribute for a gunslinger is to be cool-headed under fire rather than to have the quickest draw, and to always kill the best shooter first.
Will, Ned, and the Kid arrive in town during a rainstorm and enter Skinny's saloon. While Ned and the Kid meet with the prostitutes upstairs, Little Bill confronts a feverish Will. Not realizing Will's identity but correctly guessing that he wants the bounty, Bill confiscates his pistol and beats him. Ned and the Kid escape through a back window and take Will to an unoccupied barn outside of town, where they and the prostitutes nurse him back to health. A few days later, the trio ambush Davey. After missing Davey and shooting his horse, Ned falters and Will shoots Davey instead. Ned decides to quit and return to Kansas.
Ned is later captured and flogged to death by Little Bill to learn the whereabouts of Will and the Kid. Will takes the Kid with him to the cowboys' ranch, directing him to ambush Quick Mike in the outhouse and shoot him. After they escape, a distraught Kid drunkenly confesses he had never killed anyone before and is overcome with remorse. A prostitute arrives with the reward and tells them about Ned's fate. Shocked by the news, Will begins drinking and demands the Kid's revolver. The Kid hands it over, saying that he no longer wants to be a killer, and Will sends him back to Kansas to distribute the reward.
That night, Will finds Ned's corpse displayed in a coffin outside Skinny's saloon as a warning to bounty hunters. Inside, Little Bill and his deputies are organizing a posse. Will walks in alone, brandishing a shotgun and kills Skinny for displaying Ned's corpse. He then takes aim at Little Bill, but the shotgun misfires. In the ensuing gunfight, Will shoots Little Bill and four deputies with the revolver. He then orders the rest of the posse out. Beauchamp lingers briefly to ask how Will survived. Will replies that it was luck and scares him away. Little Bill tries and fails to take another shot while lying on the floor, then bemoans his fate and curses Will, who shoots him dead. Will shouts threats as he mounts his horse and rides out of town.
A closing title card states that Will's mother-in-law found his farm abandoned years later, Will having possibly moved to San Francisco with the children, and she remained at a loss to understand why her daughter married such a notorious outlaw and murderer.
