The film opens with an aerial view of a desert vehicle being towed by a team of camels. As the frame moves in closer, a plane flies in very close to the vehicle, knocking it's driver off. The plane, being flown by a man named Jedediah and his son, flies over the vehicle again and Jed jumps out, landing on it. Though the owner tries to catch up, Jed gets away quickly. A monkey in the back of the vehicle throws several items out for the driver, including his boots and water. The driver is Max Rockatansky, a loner who scratches a living out of the desert. He finds his small whistle in the belt of one of his boots and blows on it almost ritualistically.
Some time later, Max crests a ridge and sees desert vehicles like his heading toward a remote city called Bartertown. Max approaches the gatehouse and finds a man, The Collector, who is making deals for goods with visitors. Max demands to be let inside for an hour to find the pilot who stole his vehicle and camels. He offers to trade his skills in lieu of material goods to which the Collector tells him "the brothel's full." Max grabs the man and shoots the headdress off a guard who threatens him with knives. The Collector determines that Max may have more to offer and agrees to take him in.
On the streets of Bartertown, which are populated by citizens and criminals alike, Max sees his vehicle and camels but is dragged away to meet with Bartertown's flamboyant and charismatic leader, Aunty Entity. The two chat for a bit and Aunty sends a signal to her guards to attack Max. He dispatches them all fairly easily. Auntie tells him he's the first to "survive the audition." Aunty and the Collector explain that Bartertown is an attempt to reconstitute civilization in the face of the post-nuclear apocalypse that has destroyed all rule of law. With neither an atomic-based nor a petroleum-based energy economy, Bartertown runs on methane gas, which is produced from pig feces by prisoner-slaves. All methane comes from an underground cavern, Underworld, where pigs are raised and herded for their waste. Aunty also shows Max a large, armored man carrying a smaller man on his back. They are Master Blaster. The larger, muscular man protects the smaller man, Master, an intelligent dwarf who runs Underworld. Of late, Master seeks to wrest control of Bartertown from Aunty through embargoes where he threatens to cut off the town's energy supply. Aunty wants Max to kill Blaster in a "fair" fight so they can keep Master and use his genius to continue to run the reactor. She offers him the return of his vehicle, his camels and a supply of methane. In exchange, Max will work for 24 hours in Underworld, where he'll be able to size up his opponent.
In Underworld, Max is subjected to hard labor. He meets a prisoner who has been branded "Pig Killer." Max sees that Master wants his vehicle and has a mechanic working on it. The mechanic has run into a problem; the vehicle is booby-trapped with explosives. When Master demands Max defuse the bomb, Max refuses. His defiance enrages Master who immediately enacts another embargo against Aunty. The power to the city is nearly turned off and Master tricks Aunty into saying Master Blaster now runs Bartertown; in doing so, Master slyly switches on the city-wide intercom and Aunty's voice is heard everywhere. Master lifts the embargo and forces Max to defuse his vehicle's bomb. While he does, he trips the siren and notices that Blaster is nearly incapacitated by the noise. He tests him further with his small whistle, finding it to be an effective weapon.
Max is released from Underworld and makes a deal with Aunty to kill Blaster. Aunty shows Max Bartertown's only means of settling disputes (and it's chief form of entertainment), Thunderdome, a large domed cage that serves as a combat arena. Max picks a fight with Master Blaster as they drive through town celebrating their victory over Aunty. Master accepts the challenge of Thunderdome. Max and Blaster are taken to the arena and trussed up on elastic bands. The rules are simple: they must try to kill each other using any means necessary, including the weapons placed in the dome. Both show considerable skill in combat with Max eventually gaining the upper hand by using his whistle. He uses a large sledgehammer to knock Blaster's helmet off. As he moves in finish him, he sees that his opponent is mentally retarded. Feeling remorseful at besting an opponent that doesn't understand his own involvement, Max turns to Aunty and says "this wasn't part of the deal". Master demands to know what this "deal" involves and promises that he'll further squeeze the city for the power he provides. Suddenly, Aunty's guards kill Blaster. The crowd, realizing the outcome of the match, begins to yell the motto of Thunderdome "TWO MEN ENTER, ONE MAN LEAVES!!", a collective demand to let Max go. When Max tries to leave the arena, he's not permitted. Aunty quells the crowd by saying that Max broke their deal by not killing Blaster himself and introduces a new form of sentencing, the Wheel of Fate. The vanes of an old windmill contain punishments for Max, who spins it to reveal his fate; "GULAG". He's tied to a horse and banished to the desert.
When his horse collapses, Max is met by his monkey, who brings a goatskin filled with water. Max stumbles on, carrying the monkey, for a bit longer and finally collapses. Some time later he is found by a person dressed and equipped for desert survival. It is a woman, Savannah, who lives with a group of children in a crevice. Savannah takes Max to her home and tells everyone that she's found their savior. Max wakes up a few days later and is puzzled by the presence of the children. In a bit of playacting they show him that he bears a striking resemblance to a man named "Captain Walker". Walker was the pilot of a passenger airplane carrying colonists seeking to escape the crumbling post-atomic cities; the plane crashed in the desert years before and the children are the descendants of the passengers. The kids have believed that Walker will lead them to civilization, a place they call "Tomorrow-morrow Land". Max tells them that he's not Captain Walker and that civilization is gone, wiped out by the apocalypse. He tells them that they'll stay in the valley. Savannah, disheartened by Max' revelations, decides to leave with a small group of the children to find their paradise. Max stops them and has them bound so they won't leave. One of the group, Scrooloose, frees them in the night and they strike out. Max goes after them with a few more of the children and finds the group struggling to save one of them from a sinkhole in the desert. Even with Max's help, they fail.
Later that night, they see the distant lights of Bartertown and go there, sneaking into the city. Max knows that they need to free Master and take him along to help build a new home. They are quickly spotted by Underworld's guards and a fight ensues. Pig Killer, whom Max had befriended while working there, starts up a locomotive with an attached caboose and breaks out of Underworld into the desert. The damage to the city his heavy, however Aunty knows they can rebuild if they can recapture Master. She and her warriors pursue the train for several miles while Max and the older kids fight off Aunty's men. At one point, Aunty seizes Master and has her mechanic decouple the caboose. As they drift away, Max grabs Master and leaps into the locomotive. Coming to a sudden stop at the line's end, they see Jedediah's young son who tells them all to raise their hands. However, he runs when he sees that Aunty's crew is rapidly approaching. Max and his crew chase the boy to his father's hideout; Max tells Jedediah that they'll have to escape in the pilot's plane. With Aunty bearing down, Jedediah says that there isn't enough runway between them and Aunty to take off. Using a vehicle captured by Scrooloose, Max drives out ahead of the plane at high speed, heading directly toward Aunty's lead vehicle, driven by her bodyguard, Ironbar. Max leaps out just before the collision and the Jedediah's plane takes off safely.
Max is met by Aunty and a few of her crew, who point their rifles at him. Aunty, however, simply lets Max go and they leave him in the desert.
Jedediah flies his passengers far into the desert where they eventually come across the city of Sydney, recognizable by its famous bridge. They settle there with Savannah, who has recently borne a child, saying they keep the lights on in the city in case Max returns.