Wong Ah Ping, Chow Yun-Fat, earns the nickname Killer after single-handedly wiping out an entire troop of bandits in a brutal, personal reckoning that comes a decade before the film’s main timeline. His wife dies amid the chaos, and in the aftermath he spares only a teenage member of the gang. To shield others from the same fate, he establishes the Peace Hotel as a sanctuary where people seeking refuge can hide behind its doors. The hotel has a strict rule: no one inside may be harmed, yet it will not fight for or protect those who leave its walls.
One day, a penniless woman named Shau Shiu-man, Cecilia Yip Tung, arrives claiming to be an old lover of the owner. The staff and guests feed her and let her stay in Wong’s room. When Wong returns, Shau—who is bathing behind a curtain—falsely claims to be one of the Soong sisters and the daughter of Emperor Zhao Bing, while attempting to con money from him. At the hotel’s restaurant, Shau spots Wong in person for the first time and tries to sell him items she had stolen from his room. She recognizes him from a pocket watch photo and chokes on a sour plum she places in her wine glass. She then reveals that she is a debt-ridden clubgirl on the run after stabbing a loan shark. Wong refuses to let her stay, intending to send her away the next day.
Shau gambles with the guests and workers all night until a group of bandits from the Grand Hall arrives, and Wong forces her to admit that the loan shark died from his wounds. Wong goes out to confront the bandits’ leader, Ting Moon, while Shau, having stolen 30 gold bars, shoots their leader and flees. Yet Wong declares he will not permit trouble inside the Peace Hotel and kills a bandit who attacks him. Ting Moon vows to kill Shau within 21 days and waits outside the hotel.
Infuriated, Wong tells his workers and guests that Shau is not his lover, and they beat her and force her to work, torturing her when she cooks poorly. Shau attempts various schemes to trick Wong into protecting her, but he keeps delivering blunt rejections and repeatedly slaps her, much to the delight of the workers and guests.
One night, Shau tries to seduce Wong; he bites her lip, and she laments that his reputation as Killer is a joke and that he cannot kill the bandits if they break in. She storms outside and is relentlessly beaten by the bandits. Wong returns with a flaming torch and declares that he will hunt out any intruder inside the hotel, then drags the gravely wounded Shau back inside. He attempts CPR but fails; he then removes a sour plum stuck in her throat, and she awakens.
As he nurses her, Wong shares his history. His warlord father taught him that killing a few makes him a killer, but killing thousands makes him a hero. By age twelve he had already killed seven people who tormented him, later forming his own gang and becoming infamous for his violence until his wife’s death. He tells Shau that she resembles his wife, and he notes that two guests leave in protest of his decision to save her—only to be killed by the bandits. While Wong mourns, he forges blades for revenge, and Shau begins to sing, a moment that helps deepen their bond.
The two eventually share a dance, and Shau contemplates leaving, but Wong persuades her to stay until he resolves the threat outside. He confronts Ting Moon and allows the bandit leader to beat him with a rifle, while Ting reveals that Shau’s true name is Lam Ling and that she is his mistress who slept with everyone in his gang. Ting explains that he purposely sent Shau to the Peace Hotel to provoke Wong into breaking the hotel’s rules. He vows to unleash a massacre inside the hotel after sunset and warns everyone to leave. The guests and workers depart, but Ting does not spare them and prepares to carry out his plan until Shau arrives on a horse. Ting shoots at Wong, and a brutal sword battle erupts as the two men slaughter numerous bandits inside and outside the hotel. In the final confrontation, Wong defeats Ting Moon but is gravely wounded. Shau tries to revive him but fails and leaves with his body.
A child guest later recounts how the other guests scattered and were eventually killed, while rumors persist that Wong was seen later in Northeast China helping a young widow and her son in a hotel.
