"Blow Out" opens with the first-person viewpoint of a psycho killer prowling a female dormitory. After spying through the windows at young ladies in various stages of undress and sexual activity, the killer attacks a nude woman taking a shower. She opens her mouth and emits a ridiculous sounding scream that deflates the entire scene. We then realize we've been watching the current film that sound engineer Jack Terry (John Travolta) has been working on. His employer, a producer of low budget horror films, orders him to find a new scream for the crucial moment of this scene.
That night, Jack is standing on a bridge recording ambient sounds in a quiet park near a lake when suddenly an approaching car has a tire blow out, causing it to skid off the roadway into the water. Jack immediately dives in to help, not noticing a figure dressed in black emerging from underneath the bridge. The figure escapes while Jack tries to rescue the inhabitants of the car. Underneath the water, he finds the body of the man who was driving the car, now dead. His passenger is a young woman who is still very much alive, and Jack pulls the unconcious woman out of the wreck.
Jack takes the girl to a hospital, where he learns the shocking details of what he has witnessed: the driver of the car was the governor, McRyan, who was a presidential hopeful. Detective Mackey questions Jack about the accident, and an advisor of McRyan's, Lawrence Henry, shows up at the hospital, asking Jack to forget he ever saw the girl in the car. McRyan, who was married, was apparently having some sort of illicit affair with her, and the news of her presence in the car would have caused scandal for the dead governor. Jack talks to the girl, whose name is Sally (Nancy Allen). Sally seems confused about what happened, and when the hospital cuts her loose, Jack offers to take her home. Sally instead has him take her to a motel, where Jack watches over her while she sleeps. He listens to the recording he made in the park before the accident; his equipment was running and he caught the entire incident on an audio tape. Jack is positive he hears a gunshot before the tire blows out. Meanwhile, in a dark garage after hours, a man slips into the storage area where the governor's car is being held, and swaps the shot-out tire with another.
The next day, Jack wants to talk to Sally about the accident, but Sally is evasive about what she was doing with the governor that night, and she leaves in a hurry. A man emerges in the media claiming to have film footage of the accident; Manny Karp (Dennis Franz) sells his film to a magazine, and Jack buys a copy. The magazine has run a series of frames that Jack cuts apart and assembles into a crude home movie, using his own sound recording as the audio track. He sees the gunshot appear in conjunction with the sound effect, and for him, this is irrefutable proof that the accident was actually an assassination. Jack calls Sally and finds out that she's attempting to leave town; he intercepts her at the bus station and buys her a drink in the lounge in order to stall her. She reveals that Lawrence Henry gave her money to leave town for a few months. He learns that Sally has aspirations of being a makeup artist, although she struggles to support herself with low paying clerk's position. When Sally questions him about his own background, Jack reveals something painful from his past: he once worked with the police department placing a hidden recording device on an undercover informant. The incident ended horribly when the wire overheated and revealed the man as an informant, resulting in his murder. Jack is determined to prove that McRyan's death was an assassination, and he asks Sally to stay in order to help him unravel the mystery.
The same man who erased the evidence of McRyan's blow out reappears, stalking a woman who appears to be Sally. He kills the woman, realizing too late that she is not Sally. Confused and upset about the implications of his mistake, he disfigures the woman's body in order to make it look like a sex crime. Through a series of phone calls, it becomes clear that this man, whose name is Burke (John Lithgow), has been hired by McRyan's political rival to stage the entire incident. However, Burke is a psychopath who takes it upon himself to disobey orders and shoot out McRyan's tire, causing the accident that resulted in his death. All he was hired to do was disgrace McRyan by taking incriminating photographs, something ties in to Manny Karp. It seems as if Karp and Sally are in cahoots with one another; together, they work as a team. Sally seduces important men, and Karp arrives to photograph them in compromising positions, at which point Sally disappears and Karp sells his photographs for profit to the highest bidder (either the victim or the victim's enemies). Jack is shocked to discover that Sally was involved in such an operation, as she seems so sweet and naive.
Jack visits Mackey to reveal his suspicions about the so-called accident, but Mackey isn't interested, dismissing Jack as a crackpot with a conspiracy theory, but Jack leaves him a copy of his tape of the accident. Burke reveals to his co-conspirators that he intends to tie up all loose ends; he has erased all of Jack's audio tapes, and he intends to murder Sally, hence the reason why he attacked and killed the woman who was unfortunate enough to be her lookalike. Burke's associate disowns him, but Burke continues to act on his own, bugging Jack's phone.
Jack discovers that all of his tapes have been erased, and Mackey calls him, furious that the tape he's been given is blank. Any shred of credibility with Jack had with Mackey is now gone. However, Jack is approached by a well-known TV reporter, Donahue (Curt May), who wants to put him on his high profile talk show. Jack and Sally have obtained Manny Karp's original film of the accident, which clearly demonstrates that the tire was shot out, especially when synchronized with Jack's audio recording. Donahue wants Jack to play the film on the air and discuss his experience. Unbeknownst to Jack, Burke has tapped his phone and he eavesdrops on Jack's conversations with Donahue. Burke himself calls Sally, posing as Donahue, and asks her to meet him and show him the film.
Sally visits Jack because Burke has disabled his phone, making it appear busy. Jack is immediately suspicious of why Donahue would ask to meet Sally, not to mention how Donahue could have gotten Sally's phone number. Perhaps due to his desire to get Sally involved in Donahue's story, Jack agrees to let her go and meet Donahue, but only if she's wired so he can listen in on their conversation and record it as evidence. Sally agrees to meet Donahue, and Jack wires her with a listening device.
Posing as Donahue, Burke has summoned Sally to the 30th Street station, and while he waits for her, he murders another woman in the public restroom, apparently planning on making Sally's murder look like the work of a serial killer. Sally parts with Jack and goes to maker her meeting, but as soon as Jack hears Burke's voice, he realizes it's not Donahue, and rushes to intercept Sally. Burke ushers Sally down into a subway and takes her to another location, with Jack listening in and trying to follow them based on audio clues. Jack loses track of Sally and panics, driving his jeep into the middle of an Independence Day parade. He crashes the jeep, and when he comes to, he can hear Sally is in danger. Burke has taken her to a nearby rooftop and secured the tape from her, immediately destroying it. Confused, Sally realizes too late she is in danger; Burke attacks her as Jack tries to reach them. He finally catches sight of Sally when she breaks away from Burke, leaning over the rooftop and emitting a terrifying scream as they make eye contact at a distance. Jack rushes up to save her, but he is too late; Burke has already killed her. Jack takes Burke by surprise, stabbing him with his own weapon, but he is anguished over the fact that Sally is dead.
A denoument finds Jack now utterly despondent and broken over Sally's death, obsessed with the audio recording he made of her in the moments before her murder. In a morbid finish, Jack uses Sally's death scream as the audio in the cheap horror movie he has been working on, both Jack and his producer agree that the scream is perfect.