Shortly after his 50th birthday, LAPD Homicide Sergeant Roger Murtaugh is partnered with Sergeant Martin Riggs, a transfer from narcotics. Riggs, a former Special Forces soldier whose wife was killed in a car accident three years prior, has turned suicidal, and has been taking his aggression out on suspects, leading to his superiors requesting his transfer. Murtaugh and Riggs quickly find themselves facing off with each other.
Murtaugh is contacted by Michael Hunsaker, a Vietnam War buddy and banker, but before they can meet, Murtaugh learns that Hunsaker’s daughter, Amanda, apparently committed suicide by jumping from her apartment balcony. Autopsy reports show Amanda to have been poisoned with drain cleaner, making the case a possible homicide. Hunsaker tells Murtaugh that he was concerned about his daughter’s involvement in drugs, prostitution, and pornography, and was trying to get Murtaugh to help her escape that life.
Murtaugh and Riggs attempt to question Amanda’s pimp, but find a drug lab on the premises, leading to a shootout. Riggs kills the pimp and saves the life of Murtaugh, who starts to tolerate his new partner. Even though the case seems closed, Riggs is aware that the only witness to Amanda’s apparent suicide was Dixie, another prostitute who was working away from her normal streets. They attempt to question Dixie at her home, but the building explodes as they approach it. Riggs finds parts of a mercury switch from bomb debris, indicating a professional had set the bomb; some children who had been nearby witnessed a man approach the house with a tattoo similar to the one Riggs has, and Murtaugh suspects Hunsaker is not telling the full picture.
The pair visit Hunsaker before Amanda’s funeral, where he reveals of having previously been an operative of “Shadow Company,” a heroin-smuggling operation run by former special forces operators from the Vietnam War, masterminded by retired General Peter McAllister and his right-hand chief enforcer, Mr. Joshua. Hunsaker had been laundering the money, but wanted to get out, and when McAllister found out he had contacted Murtaugh, the general had Amanda killed in retaliation. As Murtaugh tries to get Hunsaker to reveal everything he knows about Shadow Company, Joshua arrives in a helicopter and kills Hunsaker. Then Shadow Company attempts to kill Riggs in a drive-by shooting, but he is saved by a bulletproof vest. Murtaugh and Riggs fake his murder in order to gain the upper hand.
Shadow Company later kidnaps Murtaugh’s daughter Rianne and demand that Murtaugh turn himself over to them for her return. Murtaugh and Riggs plan an ambush for the exchange at El Mirage Lake with Riggs providing sniper support, but Riggs is caught by McAllister and the trio are taken to an unknown location. Murtaugh and Riggs are tortured for information, but Riggs manages to overpower the captors, frees Murtaugh and Rianne, and they escape to find themselves in a busy nightclub used as a front for Shadow Company. With their cover blown, McAllister and Joshua attempt to escape separately. Joshua manages to get away, but McAllister’s driver is shot by Murtaugh, causing the general’s car to veer out of control and get struck by a bus on Hollywood Boulevard, and McAllister is killed when a fire causes hand grenades in the car to detonate. Murtaugh and Riggs race to Murtaugh’s home, knowing that Joshua will come after his family for revenge. They arrive in time to prevent him, and Riggs beats Joshua in a violent brawl on the front lawn. As backup officers arrive to take Joshua into custody, he breaks free and steals a gun from one of the patrolmen, but Murtaugh and Riggs pull their guns and shoot Joshua dead.
After visiting his wife’s grave, Riggs spends Christmas with the Murtaughs, having become close friends with Murtaugh and bonding with the rest of the family. Riggs also gives Murtaugh a symbolic gift: a hollow-point bullet which he had been saving to commit suicide, as he does not need it anymore.