Seven years after his discharge, Vietnam War veteran John Rambo travels by foot to visit an old comrade, only to learn that his friend had died from cancer the previous year, due to Agent Orange exposure during the war.
Rambo continues to travel, wandering into the small town of Hope, Washington. He is intercepted by the town’s Sheriff, Will Teasle, who considers Rambo an unwanted nuisance. Teasle, however, offers Rambo a lift to make sure he is headed in the right direction. When Rambo, now in Teasle’s police car, asks for directions to a diner, Teasle tells him that there is a diner 30 miles up the highway. He then drives Rambo out of the town and tells him that Portland, where Rambo had initially said he was headed, lies straight ahead. Teasle then drops Rambo off and drives back towards the town. When Rambo tries to return, Teasle intercepts and arrests him on charges of vagrancy, resisting arrest, and possessing a concealed knife.
Led by sadistic chief deputy Art Galt, Teasle’s officers abuse Rambo, triggering flashbacks of the torture he endured as a POW in Vietnam. When they try to dry-shave him with a straight razor, Rambo overwhelms the patrolmen, regains his knife, and fights his way out of the police station before stealing a motorcycle and fleeing into the woods. Teasle organizes a search party with automatic weapons, dogs, and a helicopter. Having spotted Rambo attempting to climb down a cliff over a creek, Galt defies orders from Teasle and attempts to shoot Rambo from the helicopter. Rambo, however, leaps from the cliff landing on a tree and injuring himself in the process. With Galt still trying to shoot him, Rambo manages to throw a rock, fracturing the helicopter’s windshield and causing the pilot to briefly lose control resulting in Galt, who had removed his safety harness in order to get a better firing angle, losing his balance and taking a fatal plunge to the jagged rocks below.
With the aid of a pair of binoculars, Teasle identifies Galt’s dead body and swears revenge. Rambo tries to persuade Teasle and his men that Galt’s death was an accident and that he wants no more trouble, but the officers open fire and pursue him into the woods. It is then revealed that Rambo is a former Green Beret and received the Medal of Honor, but Teasle, bent on revenge, refuses to turn the manhunt over to the State Police. One by one, using guerrilla tactics, Rambo non-lethally disables the deputies, using both booby traps and his bare hands, until only Teasle is left. Overpowering Teasle and holding a knife to his throat, Rambo tells him he could have killed them all and he threatens to give him a war he won’t believe if Teasle does not let it go.
The state police and National Guard are called in to assist in the manhunt, while Rambo’s mentor and former commanding officer Colonel Sam Trautman also arrives. Trautman confirms that Rambo is an expert at guerrilla warfare and survival, which he honed in intensive combat in Vietnam; as such, he advises and suggests that Rambo be allowed to slip through the perimeter and escape to the next town – thereby defusing the situation – then be permitted to surrender peacefully later. Confident that Rambo is hopelessly outnumbered, Teasle refuses. Teasle allows Trautman to contact Rambo – on a police radio he stole while escaping – and try to persuade him to surrender peacefully. Rambo recognizes Trautman’s voice but refuses to give up, condemning Teasle and his deputies for their abuse and noting “they drew first blood,” before hanging up.
Trying to slip through the cordon, Rambo is surprised by a young boy out hunting; he overpowers but refuses to harm the boy, who alerts the pursuers. A National Guard detachment corners Rambo at the entrance of an abandoned mine. Against orders, they use a rocket, collapsing the entrance and seemingly killing Rambo. He survives and finds another way out, hijacking a supply truck carrying an M60 machine gun and ammunition and returning to town. To distract his pursuers, he blows up a gas station, shoots out most of the town’s power, and destroys a gun store near the police station. Trautman, knowing that the sheriff is no match for Rambo, tries to convince Teasle to escape, but is ignored.
Rambo spots Teasle on the police station’s roof and they engage in a brief gunfight, ending with Teasle shot and falling through a skylight. As Rambo prepares to kill him, Trautman appears and warns Rambo that he will be shot if he does not surrender, reminding him he is the last survivor of his elite unit of Green Berets. Rambo collapses in tears and talks about his experience in Vietnam and after his return. Teasle is transported to a hospital, while Rambo surrenders to Trautman after being comforted and validated.