John Tunstall , an educated Englishman and cattle rancher in Lincoln County, New Mexico, hires wayward young gunmen to live and work on his ranch. Tunstall is in heavy competition with another well-connected rancher named Murphy and their men clash on a regular basis. Tunstall recruits Billy and advises him to renounce violence saying that "He who sows the wind will reap the whirlwind." Tensions escalate between the two camps, resulting in the murder of Tunstall. Billy, Doc , Chavez , Dick , Dirty Steve , and Charlie , consult their lawyer friend Alex (Terry O'Quinn), who manages to get them deputized and given warrants for the arrest of Murphy's murderous henchmen.
Billy quickly challenges Dick's authority as leader, vowing revenge against Murphy and the men responsible for killing Tunstall. The men call themselves "The Regulators" and arrest some of the murderers, but hot-headed Billy is unable to wait for justice. He guns down unarmed men and goes on to kill one of his fellow Regulators in the paranoid belief that he was still in league with Murphy. The men are stripped of their badges, which they find out about by reading a newspaper. That same paper also confuses Dick for Billy, showing a picture of Dick labeled "Billy the Kid," a nickname to which Billy takes an immediate liking.
While the local authorities begin their hunt for Billy and the boys, The Regulators argue about continuing with their warrants or to go on the run. One of the men on their list of warrants tracks them down, barricades himself in an outhouse, and Dick dies in an intense shootout. Billy appoints himself as the new leader, the gang becomes famous and the U.S. Army is charged with bringing them to justice under Murphy's corrupt political influence.
One of the members gets married in Mexico. The gang eludes attention for some time, but is tracked down and trapped while in the home of their lawyer on the main street of Lincoln, New Mexico. Another intense shootout begins as the authorities enter the house. Billy once again shows his shooting prowess by first calling out one of the besiegers by name, then killing him with a snap long-range gunshot out the window that should have been impossible with a handgun. A ceasefire is called for the night, but the battle continues the next morning when the Army rolls in, accompanied by Murphy. They torch the house and Chavez runs out the back of the house, causing Steve to assert that he has deserted the gang. As the house begins to burn down, the men come up with an escape plan. They begin throwing the possessions of Alex, their lawyer, out the windows of the second floor. Billy places himself inside of a large trunk, and when it lands in front of the house, he takes his opponents by surprise when he leaps out and begins to open fire.
Almost at the same time, Doc bursts out of the winding stairway leading to the top floor with guns blazing, followed by Charlie and Steve. As all the men make it to the lawn, Billy is shot twice in his arms. Charlie challenges the bounty hunter John Kinney ; Kinney shoots Charlie and Charlie fires back. Charlie kills Kinney, but in the process takes a few more bullets and dies.
Chavez takes the Army by surprise. Screaming "Regulators!", he rides in leading horses for the others. He comes from behind the army and jumps their barricade to get his extra horses to the surviving Regulators. Billy jumps on one horse as Doc gets on the other. Doc is shot as his girlfriend Yen Sun , Murphy's Chinese sex-slave, screams; he rides over to her and picks her up, and they ride off. Chavez tries to get Steve on a horse, but is wounded and falls to the ground. Steve helps Chavez mount a horse and sends the horse off so Chavez can escape, but is then left without a horse and unarmed. He is shot multiple times by the Army and Murphy's men. He falls into a dirty puddle, dead.
Alex cheers on the boys as they ride away. The army opens fire on him with a Gatling gun and he is killed. As the remaining men ride away, Murphy hurls threats and curses after them, but is stunned when Billy turns back, beyond gunshot range of most normal men. Saying, "Reap it Murphy, you son of a bitch", he makes another impossible long-range pistol shot, Hitting Murphy right between the eyes killing him.
The final scene is a voice over of Doc explaining what happened afterward. In Doc's explanation, he includes that Alex's widow caused a congressional investigation into the Lincoln County War. Chavez took work at a farm in California; Doc moved east to New York and married Yen Sun, whom he had saved from Murphy; and Billy continued to ride until he was found and shot dead by Pat Garrett, who in this film is shown as barely knowing Billy. Billy was buried next to Charlie Bowdre at Fort Sumner. A stranger went to the grave of Billy the Kid late at night and made a carving into the headstone. The epitaph read only one word: "PALS".
