In Mexico, police officer Javier Rodriguez (del Toro) and his only partner Manolo Sanchez (Vargas) stop a drug transport and arrest the couriers. Their arrest is interrupted by General Salazar (Milian), a high-ranking Mexican official who decides to hire Javier. Salazar instructs him to apprehend Francisco Flores (Clifton Collins Jr.), a hitman for the Tijuana Cartel, headed by the Obregón brothers.
Back in Tijuana, Flores, under torture, gives Salazar the names of important members of the Obregón cartel, who are arrested. Javier’s and Salazar’s efforts begin to cripple the Obregón brothers’ cocaine outfit, but Javier soon discovers Salazar is a pawn for the Juárez Cartel, the rival of the Obregón brothers. That entire portion of the Mexican anti-drug campaign is a fraud, as Salazar is wiping out one cartel because he has aligned with another for profit.
Sanchez attempts to sell the information of Salazar’s true affiliation to the Drug Enforcement Administration (DEA) but is killed for his betrayal. Javier, who can no longer stomach working for Salazar, decides to make a deal with the DEA. In exchange for his testimony, Javier requests electricity in his neighborhood so the youngsters can play baseball at night rather than be tempted by street gangs and crime. Salazar’s secrets are revealed to the public, and he is arrested and is shown suffering probable torture in prison.
Javier explains to the media about the widespread corruption in the police force and army. Later, Javier watches as children play baseball at night in their new stadium.
Robert Wakefield (Douglas), a conservative Ohio judge, is appointed to head the President’s Office of National Drug Control Policy, taking on the title drug czar. Robert is warned by his predecessor (Brolin) and several influential politicians that the War on Drugs is unwinnable. Robert’s daughter, Caroline (Christensen), an honors student, has been using cocaine, methamphetamine, and heroin which quickly develops into a drug addiction after her boyfriend Seth (Grace) introduces her to freebasing. Caroline, Seth, and Vanessa are all arrested when a fellow student overdoses on drugs, and they try to dump him anonymously at a hospital. As Robert and his wife Barbara (Irving) struggle to deal with the problem, Robert discovers that Barbara has known about their daughter’s involvement with drugs for over six months.
Robert realizes his daughter is a drug addict, and is caught between his demanding new position and difficult family life. On a visit to Mexico, he is encouraged by Salazar’s successful efforts in hurting the Obregón brothers. When he returns to Ohio, Robert learns his efforts to see Caroline rehabilitated have failed. She has run away to Cincinnati, and no one knows her exact location. She steals from her parents to procure money for drugs.
Robert drags Seth along as he begins to search Cincinnati for his daughter. After a drug dealer who is prostituting Caroline refuses to reveal her whereabouts, Robert breaks into a seedy hotel room and finds a semi-conscious Caroline in the company of an older man. He breaks down in tears as Seth quietly leaves. Robert returns to Washington, D.C., to give his prepared speech on a “10-point plan” to win the war on drugs. In the middle of the speech, he falters as he realizes how futile this all is, then tells the press that the War on Drugs implies a war even on some people’s own family members, which he cannot endorse. He then walks out of the press conference and takes a taxi to the airport. Robert and Barbara go to Narcotics Anonymous meetings with their daughter to support her and others.
In San Diego, an undercover DEA investigation led by Montel Gordon (Cheadle) and Ray Castro (Guzmán) leads to the arrest of Eduardo Ruiz (Ferrer), a high-stakes dealer posing as a fisherman. Ruiz decides to take the dangerous road to immunity by giving up his boss: drug lord Carl Ayala (Bauer), the biggest distributor for the Obregón brothers in the United States. Ayala is indicted by a tough prosecutor, hand-selected by Robert Wakefield to send a message to the Mexican drug organizations.
As the trial against Ayala begins, his pregnant wife Helena (Zeta-Jones) learns of her husband’s true profession from his associate, Arnie Metzger (Quaid). Facing the prospect of life imprisonment for her husband and death threats against her only child, Helena decides to hire Francisco Flores to assassinate Eduardo Ruiz; she knows killing Ruiz will effectively end the trial nolle prosequi. Flores plants a car bomb on a DEA car in an assassination attempt against Ruiz. Shortly after planting the bomb, Flores is assassinated by a sniper in retaliation for his cooperation with General Salazar. The car bomb meant to kill Ruiz instead kills Agent Castro, but Gordon and Ruiz survive.
Helena, knowing Ruiz is soon scheduled to testify, makes a deal with Juan Obregón (Bratt), lord of the drug cartel, who forgives the Ayala family’s debt and has Ruiz poisoned. Ayala is released, much to the dissatisfaction of Gordon, who is still angry over his partner’s death. During a phone conversation between Ayala and Metzger, Ayala deduces that it was Metzger who originally informed on Ruiz. Evidently in a bid for power with another drug cartel in Mexico, Metzger accepted $3 million to inform on Ruiz to the FBI and facilitate the Ayala organization’s downfall. Ayala says that Metzger was planning on taking over Ayala’s empire completely. As Ayala hangs up the phone, Metzger looks up to see two hit men entering his office. Soon after Ayala’s release, Gordon bursts into the Ayala home during his homecoming celebration. Bodyguards wrestle him to the ground, but Gordon is able to surreptitiously plant a listening bug under Ayala’s desk. Gordon is forced from the property, with the satisfaction of knowing that there is now a new opportunity to trap Ayala.