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Welcome to Big Whiskey, Wyoming. It's 1880, and the west is still wild.
We open in Greely's billiards hall, which isn't a billiards hall at all, but a brothel. A prostitute's face is savagely cut by the aptly-named cowboy Quick Mike. The local sheriff, Little Bill, treats the whole incident as a property law matter, and fines the cowboys. The prostitutes, livid at this lenience, put up a bounty of $1,000 for the death of Quick Mike and his accomplice, Davey Bunting.
Word reaches the baddest outlaw of all: William Munny, who's now retired and trying to make it as a farmer. He's, um, not very good at it. The messenger is the Schofield Kid—a young dude who likes to brag about how many people he's killed and how tough he is. He rides by Will's farm to enlist him on the bounty-hunt, but Will initially declines.
Shortly thereafter, Will reconsiders (he needs the cash) and solicits the help of his old buddy and partner-in-crime, Ned Logan. The guys meet up with the Kid and head to Wyoming.
Meanwhile, things have started to get interesting in Big Whiskey. Bill and Skinny (the proprietor of Greely's billiards hall), have learned of the bounty. A famous gunfighter named English Bob shows up, probably because he wants to kill the cowboys and collect the bounty. Oh yeah: and he's also brought along his biographer, W.W. Beauchamp, who writes pulpy novels with titles like The Duke of Death.
Before he can, however, he's savagely beaten by Little Bill and temporarily locked up for possessing firearms in Big Whiskey. (Little Bill has made gun toting illegal.)
Bill and Bob go way back, as we learn in Bill's conversation with W.W. Beauchamp, who's horrified to learn from Little Bill that Bob isn't the heroic defender of female honor he claims to be. Instead, he's a drunk, violent gunslinger. After a tense night spent in the Sheriff's office, English Bob is sent on his way, and Beauchamp decides to stay on to learn more from Little Bill.
As English Bob's leaving by train, Will, Ned, and the Kid watch it go by, oblivious of the fact that Bob is inside. They head towards Big Whiskey and take exactly zero notice of the sign that tells them "no firearms allowed." Later that night, Will and Ned are sitting at a table in Greely's. Will is super-sick and running a fever (probably thanks to the rain storm the men rode through to get to Big Whiskey).
Bill learns that armed men have entered his town, and he goes to Greely's to confront them. When he arrives, Ned is gone (he went off to join the Kid upstairs to get an advance on their bounty—i.e. have sex with prostitutes), and Will is alone. Bill disarms a semi-delirious Will, and proceeds to beat him almost as badly as he beat English Bob. Will is permitted to leave. He slowly crawls outside the bar, and manages to get on his horse. Ned and the Kid, fresh from their own scrape (sneaking out a second story window) join him.
That night the men hole up in a remote barn. Will drifts in and out of consciousness, only waking occasionally from what seem like a series of increasingly horrific nightmares. The Kid and Ned chat a little bit, with the Kid making some of his usual boasts—he's killed so many people, he's such a bad dude, etc. The Kid clearly wants to leave Munny lying there, go kill some guys, and go collect the bounty.
The next morning, Ned tells the Kid that he's not doing anything without Munny, which irritates the Kid. A few days later, Will's fever breaks, and he chats with Delilah, who was there nursing him. She offers him a "free one" (so: sex) and he respectfully declines.
The next thing we know, the scene cuts and Will, Ned, and the Kid are shooting at Davey.
Ned shoots at him with his rifle, but only hits his horse. Davey's pinned down, but Ned doesn't have the heart to shoot him. Will takes over. He misses several times before hitting Davey, who slowly dies over the next few minutes. It's pretty grim.
Shortly afterwards, Ned tells Will that he's going back to Kansas. He's had enough with this whole gun-for-hire thing. Will tries to convince him to stay, but Ned refuses. He rides off.
Meanwhile, word reaches Little Bill in Big Whiskey that Davey has been killed. He assembles a large group of men and sends a deputy out to Bar T to keep an eye on the cowboys. Just then, a cowboy shows up and says Ned has been captured. He's brought to the sheriff's office shortly afterwards.
The Kid and Will have spent the night in the vicinity of the Bar T. They're watching the outhouse, waiting for Mike to come out and heed nature's call. Back in Big Whiskey, Bill is savagely whipping Ned and trying to get information about his partners. He knows Ned is lying (it's true; Ned's lying) and tells him he's going to hurt him "bad" once he can confirm it. Hmm—from what we can tell, he's already hurting Ned pretty badly.
Back at the Bar T, Quick Mike goes out to the outhouse. It's the Kid's big moment to shine (and by "shine" we mean "be murderous"). The Kid goes up to the outhouse, opens the door, and…the outhouse is empty.
Just then Bill's deputy comes out of the house. Munny quickly provides some covering fire. The Kid, on the verge of a freak-out, rips open the door of the other outhouse and sees Mike on the john. After imploring the Kid not to shoot, the Kid shoots him three times. Will and the Kid then beat a hasty exit as the men from the cabin unload on them.
While Will and the Kid are waiting for their money, the Kid nervously recounts his recent exploits before breaking down and telling him that he was lying the whole time: he's never killed anybody. He clearly doesn't have the stomach for it. He pretty much just wants to go home and lead a peaceful life.
A woman brings them their money and reveals that Little Bill has killed Ned. She says Ned told Bill all about some of Will's more evil exploits, which alarms the Kid. He lets Will keep his gun, and says he's never going to use it, or kill anybody, ever again. He's out of there.
Will and the Kid approach Big Whiskey in the rain. Will tells the Kid to take his and Ned's shares back to his kids. He also tells the Kid to be careful on his way back. People will be out looking for him.
Will goes into Greely's, where he confronts a huge group of men preparing to ride out in the morning in search of Will and the Kid. After a few pleasantries, Will shoots Skinny. Bill knows Will has only one shot left in his shotgun, and orders his men to shoot him after he fires it.
Unluckily for Little Bill, Will Munny has a backup pistol—the Kid's. He shoots Little Bill, and takes out four other men. Then he lets the others leave, saying, "Anyone don't want to get killed, better head on out the back." (What an awesome line.)
Little Bill, however, isn't quite dead, and the two men have one final short chat—Little Bill saying, "See you in hell" and Will saying, bluntly, "Yeah." Will makes a cautious exit, issues a stern warning to those hiding in ambush outside, and rides out of town in the pouring rain.
"It is rumored," the film tells us in a final message, that Will went to San Francisco after the events of the film and "prospered in dry goods."