Connor Macleod (Christopher Lambert
) is at a wrestling match at Madison Square Garden in New York City. He is confronted by another man in the parking garage and an exciting sword fight ensues between the two. Eventually Connor defeats the other man by decapitating him. When that happens a mysterious energy comes to Connor and destroys several cars around him. He quickly hides his sword in one of the light racks hanging from the ceiling. Before he can leave the garage he is arrested by the police, who take him for questioning.
The story goes back hundreds of years to the Scottish Highlands of the 1500s, where we see Connor is a Scots Highlander and his clan MacLeod getting ready to go into battle. He has some battle-weary friends and a girlfriend, Heather (Beatie Edney
). We cut back to the present where some tough cops are trying to get information from Connor, but they have no evidence so they eventually let him go. The police are investigating the decapitation, and we're introduced to Brenda (Roxanne Hart
), a detective and an expert in metallurgy. The cops find Connor's opponent's sword under a car and Brenda explains it's a very valuable historical artifact, probably worth over a million dollars. Later Connor returns to the garage to retrieve his own sword, but before he does he sees that Brenda is looking at the crime scene. She finds some metal shards embedded in a nearby concrete column and saves them for analysis.
The scene returns to the Highlands, where we're introduced to The Kurgen (Clancy Brown
), who accompanies Murdoch, the leader of the enemy clan of the MacLeods. The Kurgen tells his comrades that he wants to kill Connor on the battlefield and that nobody else should fight him. The battle begins and Connor, who has never been in battle before, is very scared. He soon finds nobody wants to fight him, but eventually The Kurgen finds him and a sword fight between the two begins. The Kurgen easily defeats Connor by stabbing him in the chest, but before he can decapitate him Connor's clansmen come to the rescue and do battle with Kruger. Connor is taken back to the village but is so badly wounded everybody assumes he is going to die.
In the present we learn that Connor is an antiquities dealer and seems to be quite wealthy. A very pretty older woman is his assistant. Later The Kurgen, who now bears a hideous scar on his neck and goes by the name Victor Kruger, drives into the city and takes up residence at a seedy motel. Connor follows Brenda to a bar where they strike up a conversation and Brenda becomes very interested in him. They both leave and as Brenda tries to follow Connor he is attacked by Kruger. They fight but Connor is at an obvious disadvantage without a sword. The fight is interrupted by a police helicopter and everybody flees.
Back in the past, Connor has made a remarkable recovery and is now back to normal, in only a few days. While he is happy to be alive, his friends ostracize him. Heather says that his recovery is the work of the devil. Most everybody in the clan mirrors that sentiment. Eventually the townspeople form a mob, tie him to a pole, and take him out to be executed -- but not before one of his friends comes to his aid and frees him. Connor is exiled from his clan forever.
In the present, Brenda has analyzed the metal fragments and discovered them to be extremely unusual. She makes a date with Connor and they plan to meet at her apartment. Although she tries to make it seem like it's only a date, she actually is trying to entrap him: she has a cassette recorder hidden in a drawer and also has a gun just in case. However, when Connor arrives he's immediately on to her and calls her out on this. Brenda insists that she only wants to know what's going on but he tells her to stop digging and leaves.
Meanwhile, the Connor of the past has moved on and lives an idyllic but isolated life with Heather, who is now his wife. One day a man named Juan Sanchez Villa-Lobos Ramirez (Sean Connery
) shows up and begins training Connor in the art of sword fighting. He explains that they both belong to a race of immortals who constantly fight one another. The only way immortals can be killed is to cut their heads off completely. When one immortal decapitates another, the winner receives a transfer of power called "the quickening." Eventually all the immortals must do battle until there is only one left. The last immortal standing will receive "the Prize." Ramirez further tells Connor that The Kurgen, the perfect warrior, must not achieve the Prize or mortals will be enslaved. Ramirez also tells Connor that the Kurgen comes from an ancient race from deep in Russia and that they were sadistic and powerful. The Kurgen himself is obsessed with the Prize and is the strongest and most brutal of the Immortals.
One night while Connor is away, The Kurgen shows up and attacks Ramirez. A fierce battle ensues. They are both highly skilled and Ramirez slashes deep into The Kurgen's throat. Eventually the Kurgen, undefeated throughout time, impales Ramirez. He asks who Heather is and Ramirez lies, saying she is his woman so that his enemy won't use her against Connor. He decapitates Ramirez and receives the quickening. After it has surged through his body, he falls from the tower where he and Ramirez had battled. Heather approaches him, thinking he's dead, but he grabs her.
Connor meets an exotic-looking man in present-day Central Park at the Bow Bridge. It becomes apparent they are long-time friends. They talk about how few of them are left and say the time for the final battle is close. They also discuss the possibility that they might have to kill each other. Another flashback finds Connor and the man at the bridge during the 17th century. Connor is inebriated and about to duel a very snooty man and so drunk he can hardly stand up, but he still attempts to fight the duel. The other man easily defeats Connor by stabbing him, and quickly declares himself the victor. However, Connor gets up and wants to continue the fight. The man is stunned but resumes the fight, easily stabbing Connor. A humorous situation ensues where the man repeatedly "kills" Connor and each time Connor gets back on his feet.
After much investigation Brenda finds out that Connor, who's been going by the name of Nash, should be dead since Nash is the name of a baby that died at birth. She confronts Connor's assistant and in a flashback we learn that Connor rescued his assistant from the Nazis when she was a child. The assistant tries to keep Brenda away, but eventually Connor explains to Brenda who he really is. He proves it to her by stabbing himself in the stomach. After this revelation Brenda and Connor become lovers, although Connor is reluctant. (In another flashback, Connor's Highlander wife, Heather, dies of old age in his arms. Ramirez had earlier explained that immortals can't have children and should not get romantically involved because they will always outlive their mortal partners.)
Kruger is seen killing Connor's old friend from the bridge and later confronts Connor in a church. Churches are safe -- immortals are not allowed to do battle on holy ground. Kruger and Connor, it turns out, are the last two immortals left. Kruger taunts Connor by telling him of his defeat of Ramirez and about raping Ramirez's wife. He then realizes that Heather was actually Connor's wife and had never told him about the rape. They agree to fight. Kruger finds out that Connor is having an affair with Brenda and kidnaps her in order to draw Connor into the final fight.
The two fighters meet on the roof of a building and an epic sword fight begins. Kruger tries to use Brenda to defeat Connor by tying her to a billboard, but Connor manages to save her. The fight causes major destruction. Both fighters fall into a large warehouse which is surrounded by windows. After a climactic fight Connor defeats Kruger and experiences the mother of all quickenings, which destroys every window in the warehouse.
The last scene shows Connor and Brenda in the Highlands and it explains that the Prize gives Connor awareness of the thoughts of all people all around the world and allows him to exert some influence. As a result he can help people cooperate with one another. He is now also able to have children and grow old.