The narrative unfolds during the 1960s, focusing on three inmates in a New York prison: Earl (Van Peebles), Rocco (Kelly), and Carlito (Hernandez). While confined, they cleverly establish and maintain their criminal empire from behind bars. Once they gain their freedom, their sights are set on dominating the drug trade in Harlem, which is rife with tension between the Italian Bottolota crime family and the black gangsters led by the infamous Hollywood Nicky (Combs).
Rocco introduces the trio to Artie Bottolota (Young), who is initially hesitant to engage with black and Puerto Rican associates. However, after some negotiation, he ultimately agrees to collaborate with them in the distribution of heroin. Their crew expands when Earl's troubled younger brother Reggie joins the mix, which quickly leads to complications.
Chaos ensues when Artie Jr. decides to attack Reggie with a straight razor, while Carlito is held back. Rocco intervenes, insisting that they should manage the situation. Meanwhile, Carlito finds himself drawn to a woman named Leticia and meets her brother Sigfredo, who is aware of Carlito's true nature, resulting in a tense standoff. As time goes on, Carlito manages to earn the trust of Leticia's family, but tensions arise when Sigfredo begins to withdraw.
As Reggie is unceremoniously expelled from the group by Carlito, he retaliates by abducting Artie Jr. with the help of two accomplices. After negotiating the ransom, Artie Jr. is ultimately freed by law enforcement and reunited with his family.
In the wake of the kidnapping, the Bottolotta Family lays blame on Carlito, Rocco, and Earl for their involvement and puts a hit out on the trio. The assassin contracted to eliminate them, Nacho Reyes (Luis Guzmán), along with Carlito's ally Colorado, gets to work uncovering Reggie's whereabouts.
The plot thickens as Carlito and Nacho track down Reggie at an apartment where both Earl and Reggie are present. Gunfire erupts as Nacho brandishes two revolvers, while Carlito draws his weapon. Reggie, refusing to acknowledge his role in the escalating conflict, meets his demise. Nacho discreetly exits the scene, leaving Carlito, Earl, and Rocco to continue their operations under the Bottolota Family banner, focusing on heroin distribution.
In a twist of fate, Carlito and Earl engage in bribing corrupt officials in Harlem, leading to a deadly raid on the Bottolota Family. Following this tumultuous period, Carlito, Rocco, and Earl escape to the islands for Earl's wedding. As Earl embraces retirement, Carlito reconnects with Leticia, contemplating a temporary retreat from his dangerous lifestyle.
