Set in 1933 in a San Francisco funfair, a boy named Will who idolizes the legendary Lone Ranger encounters the elderly Comanche Tonto, who proceeds to recount his experiences with the Old West adventurer.
In 1869, lawyer John Reid returns home to Colby, Texas via the uncompleted Transcontinental Railroad, managed by railroad tycoon Latham Cole. Unknown to Reid, the train is also carrying Tonto and outlaw Butch Cavendish, who is being transported for his hanging after being captured by Dan Reid, John’s Texas Ranger brother. Cavendish’s gang rescues Butch and derails the train. Tonto is subsequently jailed. Dan deputizes John as a Texas Ranger, giving him a silver star badge that had belonged to their late father, and with six others they go after the Cavendish gang. Cavendish’s men ambush and kill their pursuers while Cavendish slays Dan with his dagger and devours his heart as revenge for his imprisonment. Tonto, who has escaped from jail, comes across the dead men and buries them. However, a white spirit horse awakens John as a “spirit walker”, and Tonto explains John cannot be killed in battle. Tonto also tells him Collins, one of the Rangers, betrayed Dan and is working with Cavendish. As John is thought to be dead, he wears a mask to protect his identity from enemies. Tonto gives John a silver bullet made from the fallen Rangers’ badges and tells him to use it on Cavendish, whom he believes to be a mystical beast called a wendigo.
At a Hell on Wheels brothel Collins recently visited, Red Harrington informs the two about Dan and Collins’ fight over a cursed silver rock. Meanwhile, Cavendish’s men, disguised as Comanches, raid frontier settlements. John and Tonto arrive after raiders abduct Dan’s widow and son, Rebecca and Danny. Regretting his earlier actions, Collins attempts to help the mother and child escape, but is shot dead by Cole, who rescues them. Claiming the raiders are hostile Comanches, Cole announces the continued construction of the railroad and dispatches US Cavalry Captain Jay Fuller to wipe out the Comanches. A Comanche tribe captures John and Tonto after the pair finds railroad tracks in Native territory. The leader tells John of Tonto’s past: As a boy, Tonto had rescued Cavendish and another man from near-death and later showed them a mountain full of silver ore in exchange for a pocket watch. The men murdered the tribe to keep the location a secret, leaving Tonto with great guilt which led to him believing the two were wendigos.
Tonto and John escape as the cavalry attack the Comanche. At the silver mine, the duo captures Cavendish. Tonto demands John use the silver bullet to kill Cavendish, but John refuses. Upon returning Cavendish to Cole and Fuller’s custody, Cole is revealed to be Cavendish’s partner and brother. Fuller, fearful of being labeled a war criminal for slaughtering the tribe, sides with Cole. Rebecca is held hostage, and John is returned to the mine to be executed. Tonto rescues him and the two flee. Realizing Cole is too powerful to be taken down lawfully and regretful since his arrogance in ignoring Tonto led to the mass slaughter of the Comanches and the kidnapping of his loved ones, John dons the mask again.
At Promontory Summit, during the railroad’s union ceremony, Cole reveals his true plan: to take control of the railroad company and use the mined silver to gain more power. John and Tonto steal nitroglycerin and use it to destroy a railroad bridge. With Red’s help, Tonto steals the train with the silver, and Cole, Cavendish and Fuller pursue him in a second train on which Rebecca and Dan Jr. are being held captive. On horseback, John pursues both trains. After a furious chase and fights on both trains, John kills Cavendish and Fuller, and rescues Rebecca and Dan Jr.. Tonto hands back Cole the pocket watch he kept for all those past years, before the train drives off the destroyed bridge, drowning Cole underneath all the silver.
The town recognizes John as a hero and offers him a law-enforcement position, but John declines and rides off with Tonto. Back in 1933, Will questions the truth of the story, to which Tonto gives him a silver bullet, tells him to decide for himself and leaves in the form of a crow. Will decides to never take off the mask.