During the American Civil War, the wife and son of Missouri farmer Josey Wales are murdered by pro-Union paramilitaries led by the brutal Captain Terrill. After burying their corpses, Wales seeks vengeance for his family by joining a group of Confederate bushwhackers under the command of William T. Anderson, attacking the Union Army and pro-Union sympathizers. After the war ends in 1865, Wales’ superior Captain Fletcher persuades his men to surrender, having been promised amnesty by Union General Jim Lane. However, Terrill’s men massacre the bushwhackers after they surrender, with Wales, Fletcher and fellow bushwhacker Jamie being the only survivors.
Wales and Jamie flee, and Lane forces Fletcher to assist Terrill in hunting them down. A mortally wounded Jamie helps Wales kill two bounty hunters before dying. With a $5,000 bounty on his head, Wales flees to Texas. He meets elderly Cherokee man Lone Watie on the way, who informs Wales that Confederate General Joseph O. Shelby is fleeing to Mexico and suggests they do likewise.
Wales subsequently rescues young Navajo woman Little Moonlight and kills another bounty hunter. Alongside Little Moonlight, Wales also rescues an elderly Kansan woman Sarah Turner and her granddaughter Laura Lee from marauding Comancheros. At the town of Santo Rio, two employees of Turner’s dead son Tom, Travis and Chato, also join the group. Wales and his companions find Tom’s abandoned ranch and settle down there.
Discovering that Travis and Chato have been kidnapped by Comanche chief Ten Bears, Wales rides into his camp and negotiates the return of the two men; an impressed Ten Bears becomes blood brothers with Wales.
A bounty hunter whose partner was killed by Wales at Santo Rio guides Terrill and his men to the town. On the following morning, Terrill’s men launch a surprise attack on the ranch, but Wales’ companions manage to gun them all down. A wounded and ammunitionless Wales follows the fleeing Terrill back to Santo Rio, where he corners him. A wounded Terrill attempts to draw his sabre but Wales grabs his hand and forces the blade through Terrill’s chest, killing him.
Returning to the town saloon, Wales discovers its patrons telling Fletcher, accompanied by two Texas Rangers, that an outlaw named Josey Wales was recently killed in Monterrey by five gunmen. The Rangers accept the story and leave, while Fletcher pretends not to recognize Wales and tells him he will go to Mexico himself to look for Wales and tell him the war is over. Wales responds by stating that “I reckon so. I guess we all died a little in that damned war” before riding off into the sunset.
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