In 1970s New York City, Lefty, an aging gangster in the Bonanno crime family, is introduced to a jewel thief named Donnie, who impresses Lefty by threatening a diamond dealer whom Donnie suspects of having sold Lefty a zirconia set ring, priced as a real diamond one. Lefty teaches Donnie the rules of the Mafia and introduces him to several made men, including Sonny, Nicky, and caporegime Sonny Red.
Donnie is revealed to be Joseph D. Pistone, an undercover FBI agent, whose wife, Maggie, is not fond of the his undercover position. After the Bonanno family’s street boss is killed, Sonny Red assumes his position. As the crew runs a series of successful shakedowns and hijackings in Brooklyn, Pistone infiltrates the Mafia and collects more information for the FBI via wiretap recording.
FBI supervisor Dean Blandford takes an interest in the case, and asks Pistone to incorporate a Miami-based undercover FBI agent, Richie Gazzo, into the Bonanno’s operation. Though reluctant, Pistone convinces Sonny and the crew to meet Richie in Miami, where Donnie and Lefty plan to run Richie’s nightclub on their own, and attempt to impress Florida mob boss, Trafficante, with a yacht party. Sonny reaches there first, angering Lefty, especially for offering Donnie to run the club as an unofficial made man. However, they later reconcile when Lefty’s son nearly dies of a drug overdose.
On its opening day, the nightclub is raided by Miami police on orders from Trafficante, who was colluding with Sonny Red. Suspecting Sonny Red to be responsible, the crew, without Donnie, kill Sonny Red and two rival caporegimes after calling a meeting. The crew also kills Nicky, who was found to have been carrying out a narcotics deal without Sonny’s knowledge and without making payments “up the chain.” Donnie helps with the clean up of the bodies. With Sonny becoming the new street boss, Donnie is tasked with finding and killing Sonny Red’s son, Bruno.
At home, Pistone’s behavior increasingly becomes like that of the criminal he pretends to be. One last dispute between Donnie and his wife becomes physical.
With increasing pressure from the FBI to end the operation and make arrests, Donnie tries convincing Lefty to escape his criminal life. However, Bruno is tracked down and Lefty discovers that the yacht Donnie had previously arranged was federally owned. Outside the location where Bruno is hiding, Lefty confronts Donnie about his loyalties. At gunpoint, Lefty forces Donnie out to kill Bruno to confirm his loyalties, but before either murder can be committed, FBI agents arrive and apprehend them.
FBI agents visit Sonny’s hangout, and reveal Donnie’s true identity to him and his crew by showing them photographs of Pistone in FBI uniform. Later, Lefty is summoned to a meeting; he leaves behind his valuables and tells his girlfriend that if Donnie calls to tell him that “if it was going to be anyone, I’m glad it was him,” as he goes to his implied death. With his family in attendance, Pistone attends a small private ceremony for his service, being awarded a $500 check and a medal.
The end title cards state that the evidence collected by “Donnie Brasco” led to over 200 indictments and over 100 convictions. Pistone lives with his wife under an assumed name in an undisclosed location, with a $500,000 open contract on his head.