Two days before his retirement, L.A.P.D. Sergeant Roger Murtaugh (Glover) and his partner Martin Riggs (Gibson) are demoted to uniform duties after trying to defuse a bomb before the bomb squad arrived, causing the destruction of an otherwise empty office building. While on street patrol they witness the theft of an armored car, and help to thwart the crime. One of the two thieves gets away, but the other is taken into police custody. The suspect is found to be a known associate of Jack Travis (Wilson), a former LAPD lieutenant who is believed to be running an arms smuggling ring in Los Angeles. The department is further concerned that the thieves were using armor-piercing bullet, informally referred to as "cop killers". Riggs and Murtaugh are re-promoted and assigned to work with Sergeant Lorna Cole (Russo) from internal affairs to track down Travis.
Travis is currently negotiating with mobster Tyrone (Millar) regarding his arms deal. The armored car thief that escaped is brought to Travis, who subsequently kills him in front of Tyrone for putting the police on his trail. Travis then uses his old (but still valid) police credentials to enter the interrogation room and kill the suspect in custody before he can be interviewed. Travis is unaware that closed-circuit cameras have been installed in the station, and Cole is able to affirm Travis' identity. While the three are reviewing the footage, their friend Leo Getz (Pesci) arrives and immediately recognizes Travis from several business deals and his love of ice hockey. Riggs and Murtaugh narrowly miss capturing Travis at a hockey match that afternoon, but Getz has provided them with information of a warehouse Travis owns, which they suspect is where he has stored his arms shipments.
Riggs and Murtaugh contact Cole for backup before they raid the warehouse. While they wait, they witness a drug deal which they step in to stop. A gun fight breaks out, and Murtaugh kills one of those involved who had fired back at them, while the rest escape. Murtaugh is shocked to find the dead man is Darryl, a close friend of his son Nick. With Murtaugh emotionally distraught, Riggs goes with Cole to the warehouse, where they successfully overpower Travis' guards and secure his next arms shipment delivery. That night, Riggs and Cole find they have feelings for each other and sleep together. Riggs later goes to Murtaugh, who is still overwhelmed with guilt, and helps to counsel him in time for Darryl's funeral. There, Darryl's father passionately insist that Murtaugh find the person responsible for giving Darryl the gun.
Cole finds that Darryl's gun, the armor-piercing bullets, and the arms they recovered were originally in police custody, meant to be destroyed, and were likely stolen by Travis; they assure that his credentials are completely revoked from the system. They further tie the guns to Tyrone, and interrogate him. Tyrone quickly reveals what he knows of Travis' plans, including an auto garage where many of his henchmen work from. Riggs, Murtaugh, and Cole are able to take several of the men into custody there. Meanwhile, Travis finds he cannot use his credentials anymore, and has one of his men hack into the computer system to find another arms storage area. He then forces Captain Murphy (Kahan) under gunpoint to take him to this new facility so he can steal the guns using Murphy's credentials. Cole finds the evidence of hacking and Murphy's absence, and the three, along with a rookie cop who looks up to Riggs and Murtaugh, go to intercept Travis. They are able to rescue Murphy and stop Travis and his men before he can take the weapons, but the rookie cop is killed as they give chase, and Riggs and Murtaugh vow to stop Travis.
Getz provides information on a housing development under construction by a company owned by Travis. Riggs, Murtaugh, and Cole infiltrate the site at night, and find themselves met by Travis and his men who have been waiting for them. A large-scale gunfight breaks out, and most of Travis' men are killed. Cole appears to be shot by Travis and falls, inciting Riggs. When Travis uses a bulldozer to chase down Riggs, using its blade as a bullet shield, Murtaugh tosses Daryl's gun, now loaded with the armor-piercing bullets, to Riggs, who then shoots and kills Travis through the blade. Cole is found to be alive and safe, having worn protective vests.
The next day, Murtaugh's family, along with Riggs and Cole, are celebrating his retirement, when Murtaugh reveals that he has decided to stay with the force, preserving his partnership with Riggs. Riggs and Cole also admit they are in love with each other and continue exploring their relationship.
What has Murtaugh decide to do with the force?
Stay