Preceding the film is a disclaimer that states that although the story was composed through historical and journalistic research, many details of Carlos' life remain a mystery and that the film should be viewed as a work of fiction.
In Paris, in 1970, Mohammed Boudia, the head of the Popular Front to Liberate Palestine's (PFLP) French contingent, is killed when a bomb, presumably planted by Mossad, explodes after he gets in his car. About a month later, Ilich Ramirez Sanchez, a Venezuelan separatist devoted to the PFLP, travels to Beirut and meets with Wadi Haddad, a leader of the PFLP. Haddad considers Sanchez' offer to head PFLP operations in London, under the supervision of, "Andre", another operative working out of Paris. When asked what his code name will be, Sanchez answers "Carlos."
Carlos is charged by Haddad and Andre with assassinating the owner of a London clothier sympathetic to Israeli Zionism. Carlos drives to the man's house, dons a mask and forces his way in, however, he is only able to wound the man before his pistol jams. He rushes out of the house and drives away.
He later joins his wife and the two go out for dinner. Over drinks, his wife tells him of the political strife in Chile, where the president, Salvador Allende, had just been overthrown by Augusto Pinochet. Carlos' wife tells him that he should focus his terrorism efforts in South America, however, Carlos counters, saying that because South America has fallen to American imperialism, that his efforts would be wasted.
At an airport in Paris, a young Japanese man is detained by customs authorities, who discover several forged passports and cash hidden in his attache case. Carlos had been planning to join with the young man's Marxist-Leninist organization, the Japanese Red Army (JRA) in their attempt to kidnap the Israeli ambassador at the embassy in the Hague. The JRA members get lost on the way, making several wrong turns. Carlos, who'd been waiting outside the building in the getaway car, leaves them behind. The JRA are able to take the ambassador hostage, along with some of his office staff and hold them for several hours. They later successfully negotiate to be released & taken to the airport.