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A young Texan named Joe Buck (Jon Voight) works as a dishwasher in a diner. As the film opens, Joe dresses himself like a rodeo cowboy, packs a suitcase, and quits his job. He heads to New York City in the hope of leading the life of a hustler.
Joe's na?veté becomes evident as quickly as his cash disappears upon his arrival in New York. He is unsuccessful in his attempts to be hired by wealthy women. When finally successful in bedding a middle-aged New Yorker (Sylvia Miles), Joe's attempt to "talk business" results in the woman breaking down in tears and Joe giving her $20 instead. (It ends up that she was a call girl herself as she thought he was another John.) Joe then meets the crippled Enrico "Ratso" Rizzo (Dustin Hoffman), a third-rate con man who easily tricks Joe out of $20 by offering to introduce him to a well-known pimp, who instead turns out to be a Bible thumper (John McGiver). Joe flees the scene in pursuit of Rizzo, but Rizzo is long gone.
Joe then spends his days wandering the city and relaxing in his hotel room. Once broke, he is locked out of his hotel room for failure to pay the bill. He finally attempts to make money by agreeing to receive oral sex from a young gay man in a movie theater, but this plan goes awry when the teen (Bob Balaban) admits to having no money. An angry Joe threatens the teen and thinks about taking the guy's watch but backs down. The next day, Joe spots an unsuspecting Rizzo at a lunch counter. He angrily shakes down Rizzo for every penny he has -— 64 cents —- but Rizzo surprisingly offers to help Joe by sharing his place, an apartment in a condemned building. Joe reluctantly accepts and they begin a "business relationship," helping each other pickpocket, steal and further attempt to get Joe hired as a gigolo. They are both completely alone without each other, and a genuine bond develops between the two men. Rizzo had a cough when the two met in the summer and, as the story progresses into winter, his health steadily worsens.
The events of Joe's early life are told through fast-cutting flashbacks interspersed throughout the film. He had been to church and baptized as a boy but has only frightening memories of the experience. The two people Joe loved were his grandmother Sally Buck (Ruth White), and his onetime girlfriend, Crazy Annie (Jennifer Salt). His grandmother raised Joe after his mother abandoned him but often left him alone to go off with boyfriends; one of them, a wrangler named Woodsy Niles (Gilman Rankin), was Joe's only father figure. Annie had been a promiscuous girl who changed her ways after meeting Joe, but this did not sit well with the men of their hometown: the two were caught and raped by a gang of males. Annie was later sent to a mental institution and Joe joined the army. Sally Buck died while Joe was away serving in the Army, and Annie remains a constant presence in Joe's mind.
Rizzo's backstory comes mostly through the things he tells Joe. His father was an illiterate Italian immigrant shoe shiner who worked deep in a subway station, developed a bad back, and "coughed his lungs out from breathin' in that wax all day!" Rizzo learned shining from his father but refuses to follow (such as he could, after polio crippled one leg) in the old man's footsteps.
At one point, an odd-looking couple approach Joe and Ratso in a diner and hand Joe a flyer inviting him to a party. They enter a Warhol-esque party scene (with Warhol superstars Viva, Ultra Violet and others in cameo appearances). The naive Joe smokes most of a joint thinking it's a cigarette, then takes a pill offered to him and begins to hallucinate. He leaves the party with a socialite (Brenda Vaccaro), who agrees to pay him $20 for spending the night with her. Rizzo falls down a flight of stairs as they are leaving; he insists he is fine. Joe and the socialite attempt to have sex but he suffers from temporary impotence. They play a game of scribbage together in which Joe shows his limited academic prowess. She teasingly suggests that Joe may be gay, and that does the trick. He is suddenly able to perform, and the two have lively, aggressive sex. In the morning, the socialite sets up a friend of hers to be Joe's next customer, and it appears his career is on its way.
When Joe returns home later, Rizzo is in bed, sweating and feverish. He admits to Joe that he is unable to walk. Joe wants to find a doctor, but Rizzo adamantly refuses. Rizzo wants to leave New York for Miami; this has been his goal the whole time. A frightened Joe is determined to take care of his friend and leaves the apartment to scrounge up money. He picks up an older male customer (Barnard Hughes), but the man tries to send him away at the last minute out of guilt. Joe's desperation boils over when the man gives him a religious medallion instead of cash. He beats up and robs the man, stuffing the phone receiver into the man's mouth when Joe thinks the man is calling the hotel front desk for help.
With the money, Joe buys two bus tickets to Florida. During the long journey, Rizzo's frail physical condition deteriorates further. At a rest stop, Joe touchingly buys bright new clothing for Rizzo and himself. He throws away his cowboy outfit and admits, "I ain't no kinda hustler." As they reach Florida and near Miami, Joe talks about getting a regular job, only to realize that Rizzo has died in the seat beside him. After Joe informs the bus driver, the driver tells him that there is nothing else to do but continue on to Miami.
The film ends with Joe seated with his arm around his dead pal, numbly staring out the bus window as row after row of palm trees go by.