In 1987, Jerry Lundegaard, the sales manager of a Minneapolis Oldsmobile dealership owned by his father-in-law, Wade Gustafson, is desperate for money. On the advice of mechanic and convicted felon Shep Proudfoot, Jerry travels to Fargo, North Dakota and hires Carl Showalter and Gaear Grimsrud to kidnap his wife, Jean. He gives them a new Cutlass Ciera and promises them half of the $80,000 ransom he says he intends to extract from Wade.
Jerry pitches Wade a lucrative real estate deal and believes Wade has agreed to lend him $750,000 to finance it, so he attempts to call off the kidnapping. Wade and his accountant Stan Grossman inform Jerry that Wade will make the deal himself and pay Jerry only a modest finder's fee.
Carl and Gaear kidnap Jean and transport her to a remote cabin in Moose Lake. A state trooper stops them near Brainerd for not displaying temporary registration tags. The trooper rejects Carl's clumsy bribe attempt and hears Jean whimpering in the back seat. Gaear shoots him, then chases down and kills two passers-by who witnessed the scene.
The following morning, Brainerd police chief Marge Gunderson, who is seven months pregnant, begins investigating. She correctly deduces that the dead trooper was ticketing a car with dealer plates. She later learns that two men driving a dealership vehicle checked into the nearby Blue Ox Motel with two call girls and placed a call to Proudfoot. After questioning the girls, Marge visits Wade's dealership, where Proudfoot feigns ignorance and Jerry insists no cars are missing. While in Minneapolis, Marge reconnects with Mike Yanagita, a high school classmate, who awkwardly tries to romance her before breaking down and saying his wife has died.
Jerry tells Wade the kidnappers have demanded $1 million and will deal only through him. In light of the three murders, Carl demands Jerry hand over all of the $80,000 he believes is the entire ransom. Carl is with another call girl in a Minneapolis hotel room when Proudfoot enters and attacks him for bringing Proudfoot to the attention of the police. Carl then calls Jerry and orders him to deliver the ransom immediately. Wade insists on bringing it and meets Carl at a parking garage. He refuses to hand over the money without seeing his daughter, so an enraged Carl shoots him. Wade is armed and fires back, wounding Carl in the jaw. Carl kills Wade and a garage attendant, then drives away with the briefcase containing the ransom.
On the way to Moose Lake, Carl discovers the briefcase contains $1 million. He removes $80,000 to split with Gaear, then buries the rest in the snow alongside the highway. At the cabin, Carl finds that Gaear killed Jean because she would not be quiet. Carl is furious and says they should split up and leave immediately, and they argue over who will keep the Ciera. Carl uses his injury as justification, shouts insults at Gaear, and attempts to take the vehicle. Gaear kills Carl with an axe.
