The film follows the story of a young Texan named Joe Buck (Jon Voight), who works washing dishes in a seedy restaurant. He wishes to leave the restaurant, declaring to a workmate, "What the hell have I got to sit around here for?" As the movie opens, Joe dresses himself like a rodeo cowboy, packs a suitcase, and quits his job. He heads to New York City in the hope of leading the life of a "kept" man. He tells people he meets, "I ain't a for-real cowboy, but I am a hell of a stud!"

Joe's naiveté becomes evident as quickly as his cash disappears upon his arrival in New York. He is hilariously, yet sadly, unsuccessful in his attempts to be hired as a "stud" for wealthy women. The naive Joe meets the crippled Enrico "Ratso" Rizzo (Dustin Hoffman), a third-rate con man who easily tricks Joe out of twenty dollars by offering to introduce him to a well-known pimp, who instead turns out to be a religious fanatic.

Joe flees the scene in pursuit of Ratso, but he is long gone. As Joe's money quickly runs out, he finally attempts to make money by sleeping with another man, but even this plan goes awry. (The novel does refer to previous homosexual activity by Joe, but explains that he'd pursued it more in hopes to please a male friend than out of desire.)

Joe then spots an unsuspecting Rizzo at a diner. Joe has been homeless after being locked out of his hotel room for failure to pay the bill. He has been sleeping in all-night movie theaters and bus stations. Joe angrily shakes Ratso down for every penny he has, but Ratso surprisingly offers to help Joe, by sharing his "place"; an apartment in a condemned building. Joe reluctantly accepts the offer, and they begin a "business" relationship, helping each other pick pocket, steal and further attempt to get Joe hired as a "stud".

The events of Joe's life are told in mostly chronological order, interspersed by flashbacks. He had been to church and baptized as a boy, but had only frightening memories of the experience, and he related religion with disappointment. The only two people Joe loved were his grandmother Sally, and his onetime girlfriend "Crazy Annie" (called "Chalkline Annie" in the novel). His grandmother raised Joe after his mother abandoned him, but often left him alone to go off with boyfriends. (One of them, a wrangler named Woodsy Niles, was Joe's only father figure.) Sally died while Joe was away serving in the Army. Annie had been a promiscuous girl, who changed her ways after meeting Joe. This didn't sit well with the men of their hometown. After the two were caught together having sex in a car, Annie was sent to a mental institution. She remains a constant presence in Joe's mind.

Ratso's story comes mostly through things he tells Joe. His father was an illiterate shoeshiner who worked in a subway station, developed a bad back, and "coughed his lungs out breathin' in that wax every day!" Ratso learned shining from his father, but refused to follow (such as he could, after polio crippled one leg) in the old man's footsteps.

Joe and Ratso also steal things as they need them, and pull minor scams like loading up on saltine crackers and ketchup at diners, and checking every coin slot they see for change. They are both completely alone without each other, and a genuine bond develops between the two men. Ratso had a cough when the two first met during the summer, and as the story progresses, his health steadily worsens. His symptoms indicate a likely case of tuberculosis, but Ratso refuses to see a doctor, professing he'll be fine "when I get to Florida!" In the meantime he consumes cough medicines.

Joe and Enrico
At one point, a bizarre-looking couple approach Joe and Ratso in a diner and hand Joe a flyer inviting him to a party. The two men go together and enter into a Warhol-esque party scene (with some of the Warhol superstars in cameo appearances). The naive Joe smokes an entire marijuana joint thinking it was a cigarette, then takes a pill offered to him and begins to hallucinate. He leaves the party with a socialite (Vaccaro), who agrees to pay him $20 for one night with him. Ratso falls down a flight of stairs, but insists he is fine, and makes his own way home.

Joe and the socialite attempt sex, but he suffers from temporary impotence. After sleeping, they play a puzzle game together. She suggests that Joe may be gay, then continues to mildly tease him. Joe is suddenly able to perform, and the two have rough, enthusiastic sex.

When Joe returns home later, Ratso is in bed, sweating and feverish, and admits to Joe that he is unable to walk. Joe wants to take Ratso to a doctor, but Ratso adamantly refuses, saying he does not want to end up in Bellevue Hospital or someplace worse. He wants to leave New York for Miami; this has been his goal the whole time. Ratso is clearly gravely ill. A frightened Joe is determined to take care of his friend, and leaves the apartment.

Joe picks up an older male customer (Barnard Hughes), who tries to send him away at the last minute out of guilt. Joe is enraged when the customer gives him a religious medallion, instead of cash when Joe says he needs it. He beats and robs the man, stuffing the telephone into his mouth when he tries to call for help.

With the money, Joe buys two bus tickets to Florida. Joe stops to buy new clothing for Ratso and himself on the way. Joe throws away his cowboy outfit, and declares "I ain't no kinda hustler." Ratso's physical condition is clearly serious, and the point is driven home by a bus scene in which Ratso awakens to find he has urinated on himself. When he tells Joe, Joe makes a joke by saying, "You just made a stop that wasn't on the schedule." They laugh together, but their powerful denial is now evident. As they reach Florida and near Miami, Joe talks about plans to get a regular job, only to ultimately realize that Ratso has died sitting beside him.

After Joe informs the bus driver, the driver tells him that there is nothing else to do but leave him there until they arrive in Miami. The final scene is of a horrified Joe seated beside his dead friend, placing his arm around him, with several of the other passengers standing up and turning around in their seats to stare.