In the spring of 1936 an exploration party penetrates thick jungle on the South American continent. When the group's leader stops to examine map fragments, another of the group pulls a gun. The leader, hearing the click as the turncoat chambers a round, pulls out a bullwhip and disarms the man, sending him fleeing back through the jungle. Thus does Dr. Henry "Indiana" Jones, Jr. (Harrison Ford) stay alive.

Indy and his remaining companion enter a dank and oppressively vast cave, where a competitor of his, Forrestal, disappeared. Inside the cave are several traps rigged by the ancient people who hid a small, valuable statue there -- and one of the traps is found to have snared Forrestal. The two men find and retrieve the statue, but the cave is rigged to collapse when the statue is moved. Indy barely escapes the cave, while his companion betrays him and is killed trying to escape.

Seemingly safe, Indy is cornered by the Hovitos, the local tribe, who are led by Dr. Rene Belloq (Paul Freeman), an arrogant French archaeologist who is a longtime rival and enemy of Indy's. Indy flees and is rescued by Jock (Fred Sorenson), flying a seaplane, though Indy isn't pleased to find Jock's pet snake Reggie inside.

Back stateside, Indy teaches an archeology class and is still upset over the loss of the statue, which he surmises Belloq is taking to Marrakesh; he has found pieces he feels will pay for a trip to Marrakesh to find Belloq, but Indy's friend Marcus Brody (Denholm Elliott) dashes that hope by informing him that two Army Intelligence officers want to talk to him about Abner Ravenwood, his former teacher, who was his friend until Indy broke up with his daughter, Marion (Karen Allen).

The Army officers are concerned because they've intercepted a German cable concerning a mammoth archaeological dig in the Egyptian desert. When they read the cable, Indy and Marcus realize the Nazis have discovered Tanis, an ancient city buried in a gigantic sandstorm in 980 B.C. and the possible burial site of the Ark of the Covenant. The Ark was built by ancient Hebrews to hold the stone tablets on which Moses inscribed the Ten Commandments. It holds immense mystical power -- enough to allow the Nazis to level mountains and lay waste to entire regions.

Indy flies to Nepal (followed by a Nazi agent, Toht (Ronald Lacey)) to confront Marion Ravenwood, who runs a restaurant and bar (and who can outdrink anyone) because he needs the headpiece to the Staff of Ra, whose crystals will allow him to determine the exact location of the Ark. Marion, still bitter over their breakup, nonetheless accepts when Indy offers her $3,000 and the promise of more when they return stateside. She is cryptic about the headpiece, and after Indy leaves she ponders it as she wears it around her neck.

Toht and several Sherpa heavies enter the bar and hold Marion hostage, with Toht ready to torture her for the headpiece. Indy returns and a firefight erupts during which the fireplace i