In 1951 Sonny Crawford and Duane Jackson are high-school seniors and friends in Anarene, Texas, a small declining northern Texas town. Duane is dating Jacy Farrow, who Sonny considers the prettiest girl in town. Sonny breaks up with his girlfriend Charlene Duggs.
At Christmas time Sonny begins an affair with Ruth Popper, the depressed middle-aged wife of his high-school coach, “Coach” Popper. She is lonely because her husband is a closeted homosexual. At the Christmas dance Jacy is invited by Lester Marlow to a naked indoor pool party at the home of Bobby Sheen, a wealthy young man who seems to be a better prospect than Duane. Bobby tells Jacy that he isn’t interested in virgins and to come back after she’s had sex.
The group of boys take their young, mentally disabled friend, Billy, to a prostitute to lose his virginity, but she hits Billy in the face when he ejaculates prematurely. When Duane and Sonny take Billy back home, Sam “the Lion” tells them that since they cannot even take care of a friend, he is barring them from the pool hall, the movie theater, and the cafe. Duane isn’t seen by Sam because he hides in the backseat. At the cafe, Genevieve, the waitress, tells Sonny she knows that Duane was with the group but agrees not to tell Sam.
During the weekend of New Year’s Eve, Duane and Sonny go on a weekend road trip to Mexico. Before they drive off, Sam, who has forgiven Sonny, chats with them about their trip, wistfully wishing he still had the stamina to join them, and gives them some extra money. When they return from the trip, hung over and tired, they learn that during their absence Sam died of a stroke on New Year’s Eve. In his will, Sam left the movie theater to the woman who ran the concession stand; the café to Genevieve; $1,000 to the preacher’s son, Joe Bob Blanton; and the pool hall to Sonny.
Jacy invites Duane to a motel for sex so that she can date Bobby, but Duane is unable to get an erection. She loses her virginity to Duane on their second attempt and then breaks up with him by telephone. When Bobby marries another girl, Jacy is disappointed. Out of boredom, she has sex with Abilene, her mother’s lover, though he is cold to her afterward. Jacy then sets her sights on Sonny, who drops Ruth without notice. Duane quarrels with Sonny over Jacy, “his” girl, and hits him in the side of the head with a bottle, blinding him in the left eye. Duane then decides to join the army to fight in Korea.
Jacy suggests to Sonny that they elope in Oklahoma. On their way to their honeymoon on Lake Texoma, they are stopped by an Oklahoma state trooper; Jacy left a note telling her parents all about their plan. The couple are brought back to Anarene. On the trip back, Jacy’s mother, Lois, admits to Sonny that she was Sam the Lion’s paramour and tells him that he was much better off with Ruth Popper than with Jacy. The marriage of Sonny and Jacy is annulled.
Duane returns to town on leave from the Army before shipping out for Korea. He and Sonny are among the meager group attending the final screening at the movie house, which is closing that day (the “last picture show” is Red River, a western set in Texas starring John Wayne). The next morning, Sonny sees Duane off on the bus. Billy is sweeping the street and is hit and killed by a truck. An upset Sonny seeks comfort from Ruth. Her first reaction is to vent her hurt and anger but then she takes his outstretched hand, saying, “Never you mind, honey. Never you mind.”