On the deck of a ship in San Pedro, California, a figure identified as Keyser speaks with an injured man called Keaton. The two talk briefly, then Keyser appears to shoot Keaton before setting the ship ablaze. The next day, FBI Agent Jack Baer (Giancarlo Esposito
) and U.S. Customs special agent Dave Kujan (Chazz Palminteri
) arrive in San Pedro separately to investigate what happened on the boat. There appear to be only two survivors: a crippled man named Verbal Kint (Kevin Spacey
) and a hospitalized Hungarian criminal and crewman. Baer interrogates the Hungarian, who claims that Keyser Söze, a Turkish criminal mastermind with a nearly mythical reputation, was in the harbor "killing many men." The Hungarian begins to describe Söze while a translator interprets and a police sketch artist draws a rendering of Söze's face. Meanwhile, Verbal Kint tells the authorities everything he knows in exchange for immunity. After making his statement to the district attorney, Kint is placed in a police station office where Kujan requests to hear the story again, from the beginning. Verbal's tale starts six weeks earlier:
In New York City, five criminals are brought together in a police lineup after an armored truck containing spare gun part is stolen in Queens, New York. Dean Keaton (Gabriel Byrne
) is a corrupt former police officer who has apparently given up his life of crime; Michael McManus (Stephen Baldwin
) is a crack shot with a temper and a wild streak; Fred Fenster (Benicio Del Toro
) is McManus' hispanic partner who speaks in mangled English; Todd Hockney (Kevin Pollak
) is a hijacker who forms an instant rivalry with McManus; and Kint himself is a con artist with cerebral palsy. In a holding cell, McManus convinces the others to join forces to commit a robbery targeting corrupt NYPD police officers who escort smugglers to their destinations around the city.
After the successful robbery of a smuggler (Paul Bartel
), the quintet travels to California to sell their loot to McManus' fence, Redfoot (Peter Greene
). Redfoot talks them into another job: robbing a purported jewel smuggler. Instead of jewels or money, as they were told he was carrying, the smuggler had heroin. An angry confrontation between the thieves and Redfoot reveals that the job came from a lawyer named Kobayashi (Pete Postlethwaite
). They later meet with Kobayashi, who claims to work for Keyser Söze and blackmails them into destroying the cargo of a ship coming to San Pedro harbor.
In the present, Verbal Kint tells Kujan the story of Keyser Söze as he apparently heard it. Verbal's flashback reveals Söze's family being harassed by a rival Hungarian gang in Turkey. Söze goes on a murderous vendetta against all those who were involved. Afterwards, he apparently disappears; thereafter, he rarely conducts business without an alias and maintains anonymity between himself and anyone working for him. With time, Söze's story takes on mythic stature, with most people either doubting his existence or disbelieving it entirely.
Back in the present, Kint continues to tell his version of what happened then. His flashback resumes to reveal Fenster's attempt to run away, but he is tracked and killed (off-camera) by Kobayashi. The remaining four thieves kidnap Kobayashi, believing Söze to be a cover for his activities and intending to kill him if he does not leave them alone. Before McManus can execute him, Kobayashi reveals that lawyer Edie Finneran (Suzy Amis
), Keaton's girlfriend, is in his office. Kobayashi also says that he has the will, the information, and the means to injure or kill the remaining four criminals' relatives if they do not go through with the arrangement.
On the night of the cocaine deal, the sellers--a group of Argentine mobsters--are on the dock, as are the buyers--a group of Hungarian mobsters. Keaton tells Verbal to stay back, and to take the money to Edie if the plan goes awry so she can pursue Kobayashi "her way;" Verbal reluctantly agrees to do so. He watches the boat from a distance, in hiding, as Keaton, McManus and Hockney attack the men at the pier in a huge climactic gunfight.
During the battle, Hockney is killed as Keaton and McManus discover separately that there is no cocaine on the boat. Meanwhile, Hungarians, yet untouched by the thieves, are being picked off by an unseen killer, and a closely-guarded Hispanic passenger is killed by an unseen assailant. McManus is killed with a knife to the back of his neck, and Keaton, turning away to leave, is shot in the back. A figure in a dark coat appears, presumably Keyser Söze, and lights a cigarette with a gold lighter. He appears to speak briefly with Keaton before apparently shooting him (the scene which began the film in medias res
In the present, with Verbal's story finished, Kujan reveals what he has deduced, with the aide of Baer: The boat hijacking was not about cocaine, but rather to ensure that one man aboard the ship--the Hispanic passenger held captive, one of the few individuals alive who could positively identify Söze--is killed. After Söze presumably killed the man, he eliminated everyone else on the ship and set it ablaze; Kujan reveals that Edie has also been killed. Kujan has concluded that Keaton was Keyser Söze. Verbal admits that the whole affair, from the beginning, was Keaton's idea. His bail having been posted, Verbal departs with his immunity.
Verbal retrieves his personal effects from the property officer as Kujan, relaxing in the office he used for the interrogation, notices that details and names from Verbal's story are words appearing on various objects around the room. 'Redfoot' is the name on a wanted poster, for example, and 'Kobayashi' is written on the bottom of a coffee cup that Verbal handled earlier. Quickly putting the pieces together, Kujan realizes that Verbal made up practically the entire story. He runs outside as a fax arrives with the police artist's impression of Keyser Söze's face, which resembles Verbal Kint. As he leaves the police station, Verbal's distinctive limp gradually disappears and he shakes out his palsied hand. He steps into a waiting car driven by "Mr. Kobayashi," departing just as Kujan comes outside to see too late that Kint is gone. Verbal Kint is Keyser Söze, so how much of his narration was truthful is open to interpretation.