In China's turbulent 1920s, we meet "Poxy" Zhang (Jiang Wen), the clever leader of a notorious bandit group. He stages an audacious ambush on a lavish government tram, targeting Ma Bangde (Ge You), who is on his way to take on the role of county governor in Goose Town (E-cheng). The derailment results in the tragic demise of Ma's bodyguards and his adviser, Counsellor Tang (Feng Xiaogang). With no money left due to his extravagant spending on bribes and embellishments for his new role, Ma resorts to fabricating his identity to survive Zhang's banditry. He lies, asserting he is Counsellor Tang and that his wife (Carina Lau) was the late governor's spouse. In exchange for their lives, he offers to help Zhang impersonate him and raid the finances of Goose Town.
Upon their arrival in Goose Town, Zhang faces opposition from the local mafia leader Master Huang (Chow Yun Fat), who rules from a heavily fortified citadel. Huang's greeting comes in the form of a majestic hat carried on a palanquin. Ma explains to Zhang the traditional practice of governors sharing taxes with Huang, yet Zhang shows little interest in exploiting the town’s impoverished inhabitants.
Tensions arise when Champion Wu (Jiang Wu), one of Huang’s thugs, severely injures a local. In response, Governor Zhang champions the injured citizen in court, striking a nerve with Huang. Seeking revenge, Huang frames Zhang's godson Six (Lao-liu) for theft, leading to Six's tragic death while trying to prove his innocence. Infuriated, Zhang pledges to destroy Huang; however, Ma advises a more tactical approach. Huang extends an invitation to Zhang for a meal at his citadel, pretending his prior subordinates' murders signify goodwill. Unknown to Huang, who thinks the governor is merely an outsider, Zhang is the very bandit he seeks to eliminate. Zhang plays along, under the guise of needing funds for his expedition.
As night falls, Huang enacts a secret mission, sending his men disguised as Mazi's bandits to kill Zhang while he sleeps. Nevertheless, they fail, inadvertently taking Ma’s wife instead in their senseless attack. Overwhelmed with grief, Ma finally comes clean to Zhang about his true identity. The funeral for Ma's wife sets the stage for escalating deceptions and retribution. Zhang retaliates by taking Huang hostage along with the leaders of Goose Town's notable families, demanding a substantial ransom for their release. His bandits soon realize they've captured Huang's look-alike, leading to a comedic yet critical predicament. The townsfolk gather the ransom money, but outraged by moral dilemmas, Zhang decides to return it, restoring the funds to their rightful owners.
In parallel threads, Flora, a captivating prostitute under Huang's command, discovers her captors' true identities and naively forms an alliance with two of Zhang's bandits. She resolves to abandon her life of dishonor and aid in protecting both the fake governor and Huang's unsuspecting duplicate.
Additionally, Ma is confronted by a mysterious woman, claiming he fathered her child while in Shanxi, for which he compensates her with two prized jewels. This narrative twist ignites Huang's next plan to eliminate Zhang, as he sends disguised thugs to infiltrate and kill him.
Once again, Huang's plot backfires, leading to the slaughter of his henchmen at Zhang's hands. Faced with imminent financial disaster, Huang reluctantly funds Zhang's Anti-Bandit Expedition—a turn of events that twists the fates of both parties. As the conflict intensifies, Huang grows increasingly desperate, planning to substitute a fake version of Zhang Mazi in a last-ditch effort to overthrow his adversary.
Simultaneously, a portrait of the real Governor Ma comes to light, forcing Huang to confront Zhang with this revelation. Caught off guard, Ma admits to being the rightful governor but cleverly spins a familial lie to conceal his true relationship with Zhang.
As the Expedition progresses, Huang orchestrates his final desperate endeavor to eradicate Zhang, utilizing a look-alike while secretly laying a landmine on their path. Amidst the ensuing chaos, Two falls victim to the disorder, yet the fake Zhang is apprehended. In a bid to avoid his demise, he offers Zhang the jewels he greedily obtained through heinous deeds.
Haunted by the memories of his wife's death, Ma recognizes the jewels, fueling his desire for vengeance against those who wronged him. Tragically, this crusade leads him over the very landmine he planted, resulting in his own untimely death.
Fueled by a relentless thirst for revenge, Zhang returns to Goose Town, intent on settling scores with Huang. With cold calculation, he distributes wealth among the townsfolk, arming them in a strategic maneuver that preempts Huang's plans. The townspeople, bolstered by their newfound power, join Zhang's bandits in a fierce assault on the citadel, culminating in the dramatic beheading of Huang's double.
As Zhang hands Huang a gun loaded with a single bullet—implying self-infliction—Huang surprises him with a final gambit. In the wake of the skirmish, he emerges from the shadows, tossing a hat even more extravagant than before, before succumbing to a cleverly hidden landmine.
While Zhang rides off into the horizon eyes set fiercely on Huang's citadel, Three has already envisioned a new beginning with Flora. The surviving bandits scheme for quieter lives on a train to Shanghai, leaving behind a tapestry of lost dreams and chaos. Yet Zhang remains relentless, chasing his vendetta through the mountains, unwavering in his quest for justice against Huang.
