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A group of prostitutes in Big Whiskey, Wyoming, led by Strawberry Alice (Frances Fisher), offers a $1,000 reward to whoever can kill Quick Mike (David Mucci) and "Davey-Boy" Bunting (Rob Campbell), two cowboys who disfigured Delilah Fitzgerald (Anna Levine), one of their own. This upsets the local sheriff, Little Bill Daggett (Gene Hackman), a former gunfighter and now an obsessive keeper of the peace who does not allow guns or criminals in his town. Little Bill had given the two men leniency, despite their crime.
Miles away in Kansas, the Schofield Kid (Jaimz Woolvett), a boastful young man, visits the pig farm of William Munny (Clint Eastwood), seeking to recruit him to kill the cowboys. In his youth, Munny was a bandit who was notorious for being a vicious, cold-blooded murderer, but he is now a repentant widower raising two children and has sworn off alcohol. Though Munny initially refuses to help with the assassination, his farm is failing, putting his children's future in jeopardy. Munny reconsiders a few days later and sets off to catch up with the Kid. On his way, Munny recruits Ned Logan (Morgan Freeman), another retired gunfighter who reluctantly leaves his wife (Cherrilene Cardinal) to go along.
Back in Wyoming, gunfighter English Bob (Richard Harris) and his biographer, W. W. Beauchamp (Saul Rubinek), arrive in Big Whiskey, also seeking the reward. Little Bill and his deputies disarm Bob, and Bill beats him savagely, hoping to set an example for other would-be assassins. The next morning Bob is ejected from town, but Beauchamp decides to stay and write about Bill, who has impressed him with his tales of old gunfights and seeming knowledge of the inner workings of a gunfighter's psyche.
Munny, Logan and the Kid arrive later amid a rain storm and go to the saloon/whorehouse to discover the cowboys' location. Munny has a bad fever after riding in the rain, and is sitting alone in the saloon when Little Bill and his deputies arrive to confront him. Little Bill has no idea who Munny is, and after finding a pistol on him he beats him brutally and kicks him out onto the street. Logan and the Kid, upstairs getting "advances" on their payment from the prostitutes, escape out a back window. The three regroup at a barn outside of town, where they nurse Munny back to health.
Three days later, they ambush a group of cowboys and kill Bunting – although it becomes apparent that Logan and Munny no longer have much stomach for murder. Logan decides to return home while Munny and the Kid head to the cowboys' ranch, where the Kid ambushes Quick Mike in an outhouse and kills him. After they escape, a very distraught Kid confesses he had never killed anyone before, and renounces the gunfighter lifestyle. When Little Sue (Tara Frederick) meets the two men to give them the reward, they learn that Logan was captured by Little Bill's men and tortured to death, but not before giving up the identities of his two accomplices. The Kid heads back to Kansas to deliver the reward money to Munny and Logan's families, while Munny drinks half a bottle of whisky and heads into town to take revenge on Bill.
That night, Logan's corpse is displayed in a coffin outside the saloon. Inside, Little Bill has assembled a posse to pursue Munny and the Kid. Munny walks in alone and promptly kills Skinny Dubois (Anthony James), the saloon owner and pimp. After some tense dialogue, a gunfight ensues, leaving Bill wounded and several of his deputies dead. Munny orders everyone out before stopping Little Bill from reaching for his pistol. Bill curses Munny before the latter finishes him with a final gunshot. Munny then threatens the townsfolk before finally leaving town, warning that he will return if Logan is not buried properly.
The final scene is a bookend shot of Munny's farm, and of Munny paying a final visit to his wife's grave. The epilogue text that follows reads that Munny and his family were rumored to have moved to San Francisco and "prospered in dry goods".