In Sam's greasy-spoon Bar and Grill, Macreedy sits at the counter and orders "chili with-out beans" and a cup of coffee. Pot-bellied Coley, who by now has plotted to kill him for interfering in the town's business, goads Macreedy into a fight by insisting that he vacate 'his' stool. He then douses his meal with the contents of a bottle of ketchup (cap and all), facetiously apologizing: "I hope that ain't too much."

Coley: I'm half-hoss, half-alligator. You mess with me and I'll kick a lung outta ya. Whaddya think of that?
Macreedy: No comment.
Coley: You know, talkin' to you is like pullin' teeth. You wear me out. You're a yellow-bellied Jap lover. Am I right or wrong?
Macreedy: You're not only wrong - you're wrong at the top of your voice.
Coley: You don't like my voice?
Macreedy: (To Smith) I think your friend is trying to start trouble.
Smith: Why ever would he want to do that?
Macreedy: Well, I don't know. Maybe he thinks that if he needles me enough, I might crack. I might even fight back. And then either he or your other ape sittin' over there could beat me to death and cop a plea of self-defense.
Smith: I don't think that'll be necessary. You're so scared now you'll probably drown in your own sweat.
Coley: No, before that happens, couldn't I pick a fight with you if I tied one hand behind me...?

As Macreedy rises to leave and passes him, Coley swings him around by his limp left arm and repeats: "If I tied both hands..." Macreedy artfully defends himself one-handed with a solid, karate-chop-like blow to Coley's neck. Macreedy's counter-attack is a strange form of judo - an appropriate act of vengeance on behalf of the dead Japanese farmer. When Coley recovers and attacks, Macreedy punches him in the stomach, karate-chops him behind the neck, and knees him in the jaw. Bloodied, Coley falls backwards against the pinball machine in the corner of the cafe. A third time, Coley snaps back, but this time is karate-chopped in the back of the neck and in the lower back - he is propelled into the screen window on the front door and tumbles down onto the dusty street. The fight ends when Macreedy upends him and spins him into one of the counter stools. Coley lies helplessly defeated and unconscious on the floor.

Macreedy removes a switchblade knife from Coley's front pocket, springs its blade out, and then looks over at Smith. Macreedy accuses Smith of murdering the Japanese farmer and then plotting to cover it up:

Macreedy: Wouldn't it have been easier to wait until I turned my back? Or are there too many witnesses present?
Smith: You're still in trouble.
Macreedy: You're in trouble. Whatever happens, you're sunk.
Smith: You got things a big twisted.
Macreedy: You killed Komoko, Smith, and sooner or later you're gonna go up for it. Not because you killed him, because I think in a town like this, you can get away with it. But because you didn't have guts enough to do it alone. You put your trust in guys like this - and Hector here - not the most dependable of God's creatures. And one of these days, they're gonna catch on that you're playin' 'em for a sap. And then what are ya gonna do? Peel 'em off, one by one? And in the meantime, one of 'em's gonna crack and when they do, you're gonna go down - but hard. 'Cause they got somethin' on ya, Smith. Something to use when the goin' gets tough. (He tosses the switchblade at Smith.) And it's gettin' tougher every minute.

In the hotel lobby later that afternoon, Hector puts coins in an unyielding slot machine at the foot of the stairs and Pete amuses himself with solitaire at the hotel desk. The Sheriff sits in one of the badly-upholstered chairs with his boots off and Sam is across from him on the sofa. Near the front door, Smith reads a neatly-folded newspaper. Macreedy descends the stairs with his suitcase as Doc enters and reports that Coley will "live" - after Macreedy's tough display of self-defense: "He's wicked. He defends himself when he's attacked." Macreedy waits for a reply to his telegram - but Hastings hasn't sent the message. Doc accuses Hastings of committing a federal offense and advises the weak-willed Sheriff to "do something about this." The Sheriff momentarily stands up to Smith, but then is silenced and decommissioned. Smith rips off his badge: "You're not Sheriff any more. You're so pathetic you just lost a job." Hector, the newly-appointed Sheriff rips up the original telegram while asking Macreedy: "You want to register a complaint, boy? To register a complaint, you've got to have evidence, boy. You got evidence?" Macreedy is left with three good-hearted, but ineffectual townsfolk - a humiliated, "useless" Sheriff, an apathetic doctor, and a preoccupied hotel clerk. Doc feels conscience-stricken by the fateful event of four years ago:

Four years ago, something terrible happened here. We did nothing about it. Nothing! The whole town fell into a sort of settled melancholy, and all the people in it closed their eyes, and held their tongues, and failed the test with a whimper. And now something terrible's going to happen again. And, in a way, we're lucky because we've been given a second chance.

But Doc is left empty-handed as the paralyzed, afraid-to-fight Sheriff "gets out."

A crippled, one-armed nomad in post-war America, Macreedy explains how he was "washed-up," planning to resign "from the human race" in South America or the "islands," and "looking for some place to get lost" because he was afraid he "couldn't function any longer." But his encounter with Smith became a catalyst to renewed action for him. Enraged, he challenges Pete to divulge the town's dark secret - "an unpleasant subject" - but first he explains his own mission. He is a World War II veteran there to present a posthumous Congressional Medal of Honor for heroism to the farming father of a Japanese wartime buddy (Joe Komoko) who had saved his life in World War II on the battlefields of Italy:

Pete: My memories are so pleasant as it is...
Macreedy: (scornfully) It's gonna take an awful lot of whiskey to wash out your guts. Go on, go on! Swill it! What is there left for you to do? You're as dead as Komoko and you don't know it....
Pete: You don't have to remind me. I've never forgotten.
Macreedy: Oh, isn't that noble of you. You haven't forgotten. And you're ashamed. That's really noble of you. I suppose four years from now, you'll be sittin' around here tellin' people you haven't forgotten me either. That's real progress. In the meantime, I'll be as dead as a - WHY DON'T YOU TELL ME WHAT HAPPENED? (To Doc) What happened?
Doc: Why did you come here, Mr. Macreedy?
Macreedy: Did Komoko have any other family besides his son Joe?
Doc: (puzzled) Son? Nobody around here ever knew he had a son.
Macreedy: Yes, he had a son. He's dead too. He's buried in Italy...Why, this Komoko boy died trying to save my life. They gave him a medal. I came here to give it to his old man. I figured the least I could do was give him one day out of my life.

The town is able to purge itself of its collective guilt and restore law and order, by admitting its past involvement in a brutal, racist act. At last after discovering Macreedy's noble mission, Pete cooperates by explaining the circumstances of Komoko's death. The Japanese man had bought an arid farm area from no-good Smith, but resourcefully made it prosperous after digging a sixty-foot deep well. Along with other "patriotic drunk" men one night after Pearl Harbor, Smith harrassed the farmer, set his house on fire, and shot him. Afterwards, the accomplices covered up the unjust, heinous murder:

Doc: Smith owned Adobe Flat. He leased it to Komoko. He figured he had cheated him because you gotta have water to raise anything. There never was any water on Adobe Flat. Komoko dug a well. He must have gone down sixty feet.
Pete: He got plenty of water. That made Smith pretty sore. He didn't like Japs anyway. The day after Pearl Harbor, Smith went to Sand City.
Macreedy: Yeah, he got turned down, trying to enlist.
Pete: Well, when he got back, he was pretty sore. Around ten o'clock, we all started drinking.
Macreedy: Ten in the morning.
Pete: Yeah. Smith, Coley, Sam, Hector, and me - we were all drunk. Patriotic drunk. We wanted to go out to scare the Jap a little and have a little fun. Well, when we got there, he heard us comin' and he locked the door. And then Smith started a fire. And the Jap - he came running out. His clothes were all burning. And then Smith shot him. I didn't even know he had a gun.
Macreedy: Then you got scared and buried him, and kept your mouths shut, hmm?
Pete: Yeah.
Macreedy: (He shoves the bottle toward Pete) Well, go ahead and have your drink now. You're gonna need it.

Pete calls his sister Liz on the phone through the switchboard, telling her that he's planning on getting Macreedy out of town and enlisting her help to find a means of escape: "I might as well be dead. Yeah, I told him everything...I'm asking you because I need your help. You'd be saving two lives, Liz: Macreedy's and mine, if that means anything to you."

That evening, after Pete lures Hector into the dark shadows of the hotel's rear alcove, Doc knocks him out the heavy brass end of a long fire hose. Macreedy is buzzed in his upstairs room and then led outside to an awaiting jeep driven by Liz. As they barrel through the night, she admits: "Well, I sure would have liked to have seen you tangle with Reno Smith." Suddenly, she brakes among some boulders - explaining that the jeep is overheating and needs water. She has driven him into an ambush. Suddenly, they are hit by a pair of headlights, and they both bail out of the jeep. Liz stands in the headlights, calling out to Reno: "Smitty! Smitty!" Macreedy cautions her to seek cover behind the jeep: "Liz, you fool. If he gets me, he's gotta get you." When she runs toward Reno's car, she turns back toward Macreedy, bantering: "So long, Macreedy." At the rocky ridge where Reno stands with a shotgun, she becomes another victim of his vengeance to intentionally prevent another witness to his violent crimes:

Smith: Just a few more steps, honey.
Liz: (breathlessly) Get him. Get him now.
Smith: First things first, honey.
Liz: Help me up, Smitty.
Smith: You were gonna help me, Liz. I still need your help.
Liz: (confused) I did everything you said.
Smith: You two started out in a car and that's the way you're gonna end up. Over a cliff - burning. You can blame Macreedy for that. He said I had too many witnesses.
Liz: But why me? Why start with me?
Smith: I gotta start with somebody.

She spins around and runs down the incline, but is shot in the back and rolls into the dirt of the embankment.

As Smith reloads his rifle, Macreedy unscrews the nut that connects the gas line of the carburetor. With an empty whiskey bottle found on the litter-strewn ground, he fills it with gasoline. His necktie provides the perfect wick for a makeshift molotov-cocktail. As Smith advances carefully from about twenty yards away, Macreedy lights the dangling end of his tie and heaves the fiery bottle at his attacker. The bottle crashes against rocks next to Smith and ignites into flames, spewing burning gasoline onto Smith's body. He drops the rifle, squirms on the ground and tries to extinguish the flames. Macreedy stands about Smith with the discarded rifle over him.

As the dawn's light, Macreedy drives Smith's station wagon back to the jailhouse. The Sheriff is pleasantly surprised to see that the "situation" is "reversed" from what he expected. In the jail's cells, the Sheriff has incarcerated Coley, Hector, Sam, and Hastings, as he boasts about the restoration of some of his dignity: "I thought I'd take one last whack at my job." Pete is informed of his sister's death - at Reno's hand.

As Macreedy prepares to leave Black Rock and the Streamliner's horn is heard in the distance, Doc asks him to give Komoko's medal to the whole town to remind the people of the cowardly conspiracy that nearly destroyed them, so that it might not happen again. At the jailhouse, two state police cars haul away the handcuffed prisoners: Smith, Coley, Hector, Sam, Pete and Hastings:

Doc: Maybe we need it. It would give us something to build on. This town's wrecked, just as though it was bombed out. Maybe it can come back.
Macreedy: Some towns do and some towns don't. It depends on the people.
Doc: (pressing his point again) That medal would help. (Macreedy reaches in his pocket and takes out a blue, velvet-covered box)

At the film's conclusion, Macreedy boards the train to leave, with the future fate of the town left in an ambiguous state.

Conductor: What's all the excitement? What happened?
Macreedy: A shooting.
Conductor: Thought it was something. First time the Streamliner's stopped here in four years.
Macreedy: Second time.