The film opens with Jerry Lundegaard dropping off a new car to Carl and Gaear. He's doing so in order that they will kidnap his wife for him. He wants them to do this so that his wife's parents will pay her ransom and Jerry will be able to get a cut of it after paying off Carl and Gaear. They will get $40,000 and he will keep $40,000. We learn that Jerry got a $320,000 GMAC loan by using dealership vehicles that did not exist as collateral.
Jerry goes to his father-in-law, Wade, to convince him to loan him $750,000 for an investment deal. Wade offers Jerry a finders fee but won't give him the loan to do the deal. Instead, Wade wants to move on the investment independent of Jerry. Carl and Gaear then kidnap Jean. On their drive they are stopped by a police officer for not having temporary tags. The cop hears a sound coming from the car and Gaear kills him along with two other eyewitnesses.
Marge Gunderson, the police chief then comes to the scene of the crime where the trooper was murdered and pieces together that he had stopped a car with a dealership plate, he was giving a ticket to the driver. Marge learns that two men driving a dealership vehicle checked into the Blue Ox Motel with two prostitutes and called Proudfoot shortly after. She questions the two prostitutes and heads to the car dealership where Proudfoot pretends to know nothing about it while Jerry tells her there are no missing cars. Marge then connects with an old high school mate, Mike Yanagita who tries to come on to her, far too aggressively. He then breaks down crying and says that his wife has died.
Jerry then tells Marge that the kidnappers have demanded one million dollars, and will only go through him to negotiate. Carl then tells Jerry that he wants the full $80,000 since they have now killed three people. Jerry now has 24 hours to prove that the dealership vehicles he's used as collateral are real or he must return the loan. Meanwhile, Proudfoot beats Carl for bringing him into the light of the police for with the murders. Now, Carl wants the ransom money immediately. Jerry is going to deliver it but his father-in-law is insistent that he be the one to make the drop as he wants to ensure that Jean is alive before he gives the money over to the kidnappers.
Because of his need to see Jean before turning over the ransom money, Wade is shot and killed by Carl. Wade was able to get a shot of with his pistol, hitting Carl in the face who survives and begins to run with the briefcase. He opens it to find $1,000,000 inside. He takes out $80,000 to split with Gaear and buries the rest alongside the highway. Back at the cabin, Gaear has killed Jean. Gaear and Carl decide to leave the state immediately and split up. The two get into an argument that escalates over who will keep the car, that turns into Gaear killing Carl with an axe.
We learn that Mike Yanagita was lying about having a dead wife. This leads to Marge to return to the car dealership where Jerry again tells her there are no missing cars. Jerry then flees the dealership. The next day Marge heads to Moose Lake after a bar owner reported a man bragging about killing someone. She finds the dealership car and close by Gaear, who is putting Carl's body piece by piece into a wood chipper. Marge shoots him and arrests him, and later Jerry is arrested in North Dakota.
The film ends with Marge getting into bed with her husband Norm who tells her that his painting was selected to be on the three cent stamp. They confirm their love for each other, and say, "two more months" as they are expected their child.
