Winnetou is able to save the chief's daughter Ribanna from a bear attack during a ride to the Assiniboin tribe. Out of gratitude, her father releases three previously captured soldiers from torture stakes at Winnetou's request. Among the soldiers is Lieutenant Robert Merril, the son of the Fort Niobrara commander, and he is meant to carry Winnetou's message to his father: that Indians from all tribes want to meet at the fort to negotiate a lasting peace with the whites.
The three soldiers witness how Bud Forrester and his gang raid a Ponca village for its oil deposits, with six bandits ordered to kill. By chance, Old Shatterhand and Gunstick Uncle appear and rescue the unarmed soldiers.
In the Assiniboin camp, Winnetou and Ribanna grow closer and fall in love.
Old Shatterhand sets out with the adventurous Lord Castlepool to New Venango, the base of the Forrester gang. They are threatened, separated from their horses, and arrested. In captivity, Old Shatterhand secretly teams up with the workers there to destroy the oil warehouse and free the captives. The burning warehouse is finally set alight by the surviving Ponca Chief.
A meeting at Fort Niobrara brings together the United States Army and the leaders of all the Indian tribes in an effort to negotiate peace. Yet war hangs in the air, borne of past atrocities, and the tribes express a readiness to fight. Then, Lieutenant Merril hints at marrying Ribanna for peace, an idea that sways many war hawks, though Winnetou is shocked and ultimately sacrifices his own love to keep the peace.
Forrester and his men stage a false-flag attack on a settler caravan and blame the Assiniboin, pushing the conflict toward a broader war.
When Old Shatterhand, Lord Castlepool, and Winnetou visit the site of the raid, they are discovered by Forrester and his gang and besieged in a hollow. Their guerrilla tactics kill many attackers and help them break free.
Meanwhile, the cunning David "Luke" Lucas(/actor/klaus-kinski), Forrester's henchman, pretends to be the last survivor of the trek to the Fort Niobrara soldiers. The commander orders troops to the scene, and Merril—now a civilian after the wedding—hands Lucas over to the Assiniboin. Old Shatterhand then intersects with the patrolling soldiers to track the gang.
Lucas manages to incapacitate his guards and warns Forrester that the Assiniboin are waiting in New Venango. Forrester, unable to reach the supplies, follows Lucas's plan, aware that the Indians' wives and children are in a cave with the newlyweds. There, Forrester takes Ribanna and Merril hostage and demands that the soldiers who arrived with Old Shatterhand withdraw and provide provisions to move toward the Mexican border, or he will kill the couple.
Time runs out for the Army to supply them, and a battle erupts. Winnetou and his tribal battalion arrive to aid the Army and help subdue the gang.
Winnetou successfully leads a daring rescue, swimming through an underground channel with Assiniboin warriors to reach the cave and free Merril and Ribanna. Forrester, the last surviving bandit, appears to escape death through Indian arrows as the cave yields peace. With the threat quelled, Winnetou and Old Shatterhand ride off toward new adventures.
