The film begins as Tango drives a late-model Cadillac convertible in pursuit of a tanker truck. His hair is neatly styled, and he is dressed in a three-piece suit. He cleverly stops the truck, and when the LA County authorities find only gasoline in the tank, he shoots the tank and cocaine pours out of the bullet hole. Meanwhile, Cash arrives at his apartment driving an old Corvette. His hair is long and shaggy, and he is dressed in jeans, a T-shirt, and a waist-length jacket. He is shot by an intruder, but is protected by a bullet-proof vest, and captures the shooter in a parking garage after a car chase. At the police station, Cash forces the shooter to tell him about a deal scheduled to take place that night.
However, the "deal" is really a plan by Perret to frame Tango and Cash for murder. Tango and Cash separately go to an empty building, preceded by a man who is revealed later in the film to be Requin (Brion James), Perret's lead henchman. After surprising each other, the two detectives find a dead man with audio equipment hidden under his clothing, and a team of FBI agents swarms in. Wyler, the agent in charge, finds Cash's pistol on the floor and arrests both Cash and Tango.
At their murder trial, the detectives are incriminated by an audio tape, secretly given to Wyler by Requin and verified in court by an audio expert, which appears to reveal them shooting the FBI agent after discussing a drug purchase. They plead "no contest" to a lesser charge in exchange for reduced sentences in a minimum-security prison, but are transported to a maximum-security prison to be housed with many of the criminals they arrested in the past.
Once in prison, Tango and Cash are rousted from their bunks and tortured by Perret, Requin, and a gang of prisoners until Matt Sokowski, the assistant warden, rescues them. Sokowski recommends that they escape, and provides them with a plan, but Tango refuses to go along with it. When Cash tries to escape, he finds Sokowski murdered and is attacked by prisoners. Tango rescues him, and the two of them escape. Once outside the prison walls, Tango tells Cash to ask for his sister Katherine (Hatcher) at a dance club if he needs to contact him later, and they go separate ways.
The detectives then visit the witnesses who framed them in court. Wyler admits to Tango that Requin was in charge of the setup, and Cash discovers that the audio expert made the incriminating tape himself. Cash finds Katherine at the dance club, working as an exotic dancer. Later that night, Tango and Cash are met at Katherine's house by Tango's commanding officer, who gives them Requin's address and tells them they have 24 hours to find out who Requin works for. Tango and Cash apprehend Requin and trick him into telling them Perret's name. Armed with a high-tech assault vehicle, they drive to Perret's headquarters, crash through the outer fence, destroy a fleet of armed trucks, hijack two heavy vehicles, crash into the main building, and kill several guards.
At this point, Perret, who has kidnapped Katherine, starts a timer that will trigger the building's automatic self-destruct procedure. After killing Perret's core security personnel, Tango and Cash are confronted by Requin, who is holding Katherine at knifepoint but throws her aside to fight the detectives hand-to-hand with the help of another henchman. The detectives defeat the two criminals, and when Perret appears, holding a gun to Katherine's head, they kill him and leave with Katherine just before the building explodes. Afterward, they joke half-seriously about Cash's desire to date Katherine. The film ends with a newspaper headline celebrating their vindication.