On the deck of a ship in San Pedro, California, a figure identified as "Keyser" speaks with an injured man called Keaton. The two talk briefly, then Keyser appears to shoot Keaton before setting the ship ablaze. The next day, FBI Agent Jack Baer (Giancarlo Esposito) and U.S. Customs special agent Dave Kujan (Palminteri) arrive in San Pedro separately to investigate what happened on the boat. There appear to be only two survivors: a crippled man named "Verbal" Kint (Spacey), and a hospitalized Hungarian criminal. Baer interrogates the Hungarian, who claims that Keyser Söze, a Turkish criminal mastermind with a nearly mythical reputation, was in the harbor "killing many men." The Hungarian begins to describe Söze while a translator interprets and a police sketch artist draws a rendering of Söze's face. "Verbal" Kint tells the authorities everything he knows in exchange for immunity. After making his statement to the district attorney, Kint is placed in a police station office where Kujan requests to hear the story again, from the beginning. Verbal's tale starts six weeks earlier:

Five criminals are brought together in a police lineup. Dean Keaton (Gabriel Byrne) is a corrupt former police officer who has apparently given up his life of crime; Michael McManus (Stephen Baldwin) is a crack shot with a temper and a wild streak; Fred Fenster (Benicio Del Toro) is McManus' partner who speaks in mangled English; Todd Hockney (Kevin Pollack) is a hijacker who forms an instant rivalry with McManus; and Kint himself is a con artist with cerebral palsy. While in holding, McManus convinces the others to join forces to commit a robbery targeting corrupt NYPD police officers who escort smugglers to their destinations around the city. After the successful robbery, the quintet travel to California to sell their loot to McManus' fence, "Redfoot." Redfoot talks them into another job: robbing a purported jewel smuggler. Instead of jewels or money, as they were told he was carrying, the smuggler had heroin. An angry confrontation between the thieves and Redfoot reveals that the job came from a lawyer named Kobayashi (Pete Postlethwaite). They later meet with Kobayashi, who claims to work for Keyser Söze and blackmails them into destroying the cargo of a ship coming to San Pedro harbor.

In the present, Verbal tells Kujan the story of Keyser Söze as he apparently heard it. Verbal's flashback reveals Söze's family being harassed by a rival Hungarian gang in Turkey. Söze goes on a murderous vendetta against all those who were involved. Afterwards, he apparently disappeared; thereafter, he rarely conducted business without an alias and maintained anonymity between himself and whoever worked for him. With time, Söze's story took on mythic stature, with most people either doubting his existence or disbelieving it entirely. Back in the present, Kint continues to tell his version of what happened on the boat. His flashback reveals Fenster's attempt to run away, but he is