"In town you're the law, out here it's me. Don't push it or  

                           I'll give you a war you won't believe."

The film centres on John Rambo, a former member of the US Army's Green Beret's who fought in Vietnam and was a medal of honour recipient for his actions there. Rambo has difficulty adjusting to civilian life and wanders the country as a drifter. The film begins as he is seeking out his friend Delmore Barry, apparently the only other Special Forces member from his unit to make it out of Vietnam alive.

Rambo finds out from Barry's widow that he died from cancer due to agent orange exposure, and she is clearly very upset that she lost the man she loved and is also left to eke out a meager existence on her own. Rambo, in an attempt to offer some cold comfort to her, gives her the photograph of her husband's unit. This also hurts Rambo deeply as now he realizes that he is the last of his unit. Left to continue drifting, Rambo runs afoul of Will Teasle, the sheriff of a small Washington state mountain resort town called Hope. Teasle drives Rambo out of town while telling him the people of Hope don't appreciate people of his kind; drifters. Rambo asks for a place to eat, but Teasle refuses him courtesy in the town. Rambo is dropped outside of town but heads back, refusing to be pushed out. Teasle forcefully stops and arrests Rambo for vagrancy, resisting arrest, and carrying a concealed weapon, a large survival knife, which he claims is for hunting.

Teasle brings Rambo back to the station, where he is beaten by Art Gault, the sheriff's sadistic head deputy. During the beatings, Rambo has flashbacks to his time as a prisoner of war. The sight of a straight razor, as the deputies attempt to shave him, brings to Rambo's mind horrible torture when he was a POW and causes Rambo to have a psychotic episode. He violently disables the officers with nothing but his hands, escapes the police station with his knife, and heads into the mountains on a stolen motorcycle. Teasle gives pursuit in his police car, which is overturned after an extended chase. Rambo flees into the hills, wearing only his jeans, shoes and a tank-top. Rambo quickly improvises cold weather gear with items he finds at the remains of a construction site.

The deputies go after Rambo on foot, aided by a pack of dogs, forcing him to climb down a steep cliff overlooking a river gorge to elude capture. Deputy Gault, ignoring Teasle's orders to capture Rambo alive, attempts to murder him from a helicopter while he is trapped on a ledge, unseen by the other deputies. Rambo drops into a mass of trees, badly cutting himself, and is cornered by the helicopter again. He throws a rock at it, causing it to pitch heavily and drop Gault into the gorge, killing him. Deputy Mitch reasons with Teasle that Gault might have earned his fate due to his abusive behavior, but Teasle furiously ignores this and vows to avenge his life-long friend's death.

Teasle leads his deputies into the woods in an attempt to capture Rambo. The deputies are inexperienced and fight amongst themselves, making them easy targets. Rambo kills the Dobermans and disables the deputies using guerilla war tactics, severely wounding but not killing them. Rambo then confronts Teasle, knife to his throat. He threatens chaos should he be pursued again:

Rambo then leaves suddenly. Teasle is clearly shaken, but refuses to give in. He calls in the National Guard and the State Police. A TV broadcast of the incident gets the attention of Rambo's former commanding officer, Colonel Samuel Trautman, who warns the searchers that trying to capture Rambo is suicidal; his combat training and experience make him far better then anyone they have. Trautman's suggests letting Rambo go; they can probably pick him up working at a car wash and nobody else will get hurt. Teasle dismisses that advice, claiming that Trautman was only sent by the Pentagon to save face.

When the National Guard unit finds Rambo holed up in a mine entrance, they are afraid to go after him and take the easy way out- firing a rocket launcher and collapsing the mine. Teasle is furious, as he wanted Rambo alive, but eventually accepts that his nemesis is dead. Unbeknownst to his pursuers, Rambo survives the explosion and cave-in. He crawls through tunnels in the mine, struggling to keep his torch burning and fighting rabid rats. Eventually he finds an exit near a main road. Rambo then steals an Army truck with a machine gun attached from the National Guardsmen and returns to Hope. Rambo then takes out his frustration on Teasle's "quiet little town" by destroying a gas station, a local surplus store, and a sporting gun shop.

Trautman talks to Teasle for the final time, advising him to give up his mania of stopping Rambo. Teasle staunchly refuses, saying he's not afraid of his inevitable death. Trautman candidly tells him that it's clear which of them has any chance at survival, but not because Trautman is better then Rambo; the simple fact that Rambo trusts him is the only advantage he needs. Teasle is stunned at this callousness, but says that nothing will take "his town" away from him. He himself hides on the roof, hoping to catch Rambo running around. Rambo thwarts this by destroying power lines and cutting all the lights in the town, making it impossible for Teasle to catch Rambo.

Rambo spots Teasle on the roof. After destroying the station, he manages to badly wound the sheriff and bring him down through a skylight. Teasle curses Rambo with what he thinks will be his final words. Meanwhile, the state police have surrounded the building, cutting off every way out. Rambo is about to finish what he's started when Colonel Trautman appears and tells him that his mini-war is over. He then rages about how what meant something in the war - honour and loyalty - means nothing in the real world. He breaks down sobbing and tells a story about how his friend Danforth died in a Saigon bar due to a suicide bombing by a shoe shining boy. With no purpose left, Rambo gives himself up to the authorities.

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