In 1916, the infamous bandit El Guapo (Alfonso Arau) and his gang terrorize the small Mexican village of Santo Poco by demanding protection money. In a desperate search for help, Carmen (Patrice Martinez), the daughter of the village leader, discovers a silent film showcasing "The Three Amigos" and takes it upon herself to send a telegram to Hollywood, believing these fictional heroes can save her people. Unfortunately, due to budget constraints, the telegraph operator shortens her plea for assistance.
Meanwhile, in Hollywood, three silent film actors — Lucky Day (Steve Martin), Dusty Bottoms (Chevy Chase), and Ned Nederlander (Martin Short) — face a crisis of their own. After demanding a wage increase from their studio boss Harry Flugleman ([Joe Mantegna]), they are promptly fired and evicted from their housing. Shortly thereafter, these amateur heroes receive a distorted version of Carmen's telegram, interpreting it as an offer to star in a film about El Guapo. They quickly break into the studio to gather their costumes and set off for Mexico.
Upon arriving at a cantina near Santo Poco, they are mistakenly identified as allies of a fast-shooting German pilot ([Kai Wulff]), who is also in search of El Guapo. A hopeful Carmen arrives to welcome them and brings the Amigos to her village, where they are given the finest accommodation and treated like royalty. The following morning, when three of El Guapo’s men come to raid the village, the Amigos attempt a comical Hollywood-style stunt performance, leaving the bandits utterly perplexed. Believing they have been vanquished, the bandits retreat, unaware that they have informed El Guapo of the Amigos' presence. He vows to return with greater force to confront them.
As the German’s real associates arrive at the cantina, showcasing their own sharpshooting skills, the villagers hold a jubilant celebration for the supposed bravery of the Amigos. However, El Guapo soon confronts them, prompting the Amigos to confess their cowardice when Lucky is shot in the arm. El Guapo seizes the moment to loot the village and abduct Carmen, leading the Amigos to an exit filled with shame. Hopeless and with no refuge awaiting them, Ned inspires Lucky and Dusty to transform from actors into authentic heroes and pursue El Guapo.
Their initial attempts to discover El Guapo's hideout yield no success, but they fortunately spot a cargo plane and follow it; the pilot is the German, delivering firearms to the gang in preparation for El Guapo's impending 40th birthday celebration, where he intends to wed Carmen. The Amigos make a comical yet chaotic attempt to infiltrate the hideout: Lucky finds himself shackled in a dungeon, Dusty crashes into Carmen’s quarters, while Ned gets ensnared in a piñata.
As Lucky manages to escape and Dusty is caught, Ned’s luck changes as he is released and now also finds himself captured. The German, who has long admired Ned's impressive gun skills, challenges him to a duel. In an unexpected twist, Ned prevails, eliminating the German, while Lucky momentarily holds El Guapo at gunpoint, allowing Carmen and the Amigos to escape — first on horseback, then by commandeering the German's plane.
On their return to Santo Poco, with El Guapo's entire gang in hot pursuit, they rally the villagers to stand their ground and prepare for battle. The bandits arrive in an eerily deserted village only to find themselves outmaneuvered as the Amigos, armed with hidden weapons and water-filled trenches laid by the villagers, launch a surprising defense. One by one, El Guapo's henchmen either flee or fall in the crossfire, and El Guapo ultimately sustains a fatal injury as he lies dying. In his last moments, the armed villagers, clad in replicas of the Amigos’ costumes, confront him. He acknowledges their cleverness but manages to shoot Lucky in the foot before he takes his last breath.
The villagers offer to share their meager treasures with the Amigos, but they graciously decline, stating that witnessing justice fulfilled is their true reward. With camaraderie and purpose, the Amigos then ride off into the sunset, prepared to embrace their newfound identities as genuine heroes.
