In 1937 Mississippi during the Great Depression, three convicts, Ulysses Everett McGill, Delmar O’Donnell and Pete, escape from a chain gang and set out to retrieve a treasure Everett claims to have buried from an armored truck robbery, before its locale is flooded to make a lake and provide electricity for the state. The three get a lift from a blind man driving a handcar on a railway. He tells them, among other prophecies, that they will find a fortune but not the one they seek. The trio make their way to the house of Wash, Pete’s cousin. They sleep in the barn, but because he needs the money, Wash reports them to Sheriff Cooley, who, along with his men, torches the barn. After Pete angrily blows up Cooley’s police van, Wash’s son helps them escape.
Pete and Delmar are baptized by a group of Christians at a river. The trio then picks up Tommy Johnson, a young black man, who claims he has sold his soul to the devil in exchange for the ability to play the guitar. In need of money, the four stop at a radio broadcast station where they record a song as the Soggy Bottom Boys. That night, the trio part ways with Tommy after their car is discovered by the police. Unbeknownst to them, the recording becomes a major hit.
The trio inadvertently fall in with bank robber George “Baby Face” Nelson, and help him with a heist, before he leaves them with his share of the loot. The next day, the group hears singing. They see three ladies washing clothes in a river and singing. The ladies drug them with corn liquor and they lose consciousness. Upon waking, Delmar finds Pete’s clothes lying next to him, empty except for a toad. Delmar is convinced the ladies were Sirens and transformed Pete into the toad. Later, one-eyed Bible salesman Big Dan Teague invites them for a picnic lunch, then mugs them and kills the toad.
Everett and Delmar arrive in Everett’s home town. Everett confronts his wife Penny, who has resumed her maiden name and told his daughters he was dead. He picks a fight with Vernon T. Waldrip, her new “bona fide” fiancé and ultimately loses. They next see Pete working on a chain gang and later that night sneak into Pete’s holding cell and free him. As it turns out, the ladies at the river had dragged Pete away and turned him over to the authorities, at which, and under torture, Pete gave away the location of the treasure to the police. Everett then confesses that there is no treasure. He made it up to convince the others he was chained with to escape with him to stop his wife from getting married, and the real reason he was imprisoned was for practicing law unlicensed. Pete is enraged at Everett, because he had two weeks left on his original sentence, and must now serve 50 more years for the escape.
The trio stumble upon a night rally of the Ku Klux Klan, who are planning to hang Tommy. They disguise themselves as the Color Guard and attempt to rescue Tommy. Big Dan, who is revealed to be a Klansman, unmasks them. Chaos ensues, and the Grand Wizard reveals himself as Homer Stokes, a candidate in the upcoming gubernatorial election. The trio rush Tommy away and cut the supports of a large, flaming cross, leaving it to fall onto Big Dan.
Everett convinces Pete, Delmar and Tommy to help him win his wife back. They sneak into a Homer Stokes gala campaign dinner that she is attending, disguised as bearded musicians. The group begins a performance of “Man of Constant Sorrow”, and the crowd goes wild. Stokes recognizes them as the group who interfered with his mob. Furious, he interrupts the group’s performance and demands them to be arrested, but when he reveals his white supremacist views, the crowd runs him out of town on a rail. Pappy O’Daniel, the incumbent candidate, seizes the opportunity, endorses the Soggy Bottom Boys and grants them full pardons. Penny agrees to marry Everett with the condition that he find her original ring.
The next morning, the group sets out to retrieve the ring, which she says is in a rolltop desk, at a cabin in the Tennessee Valley, which Everett had earlier said was the location of his treasure. Having forced the location out of Pete, Sheriff Cooley is waiting with ropes ready to hang them, callously dismissing their claims of having pardons from the governor. Just as Everett prays to God, the valley is flooded, and they are saved. Tommy finds the ring in the rolltop desk and the four return to town and go their separate ways. When Everett presents the ring to Penny, it turns out not to be the right ring. She continues to insist they need the real ring, despite Everett’s protests that it was lost in the flood. The blind man is seen pushing his handcar once again.