Amid the political protests of the crisis in Burma, ruthless military officer Major Pa Tee Tint (Maung Maung Khin) leads an army of Tadmadaw soldiers to pillage small villages in a campaign of fear. He watches with indifference as innocent villagers are forced into mine-infested marshes and orders his men to abduct the teenage boys of the villages to be indoctrinated into his army. Former U.S. soldier John Rambo now lives in Thailand in a remote village near the Burmese border where he makes a living capturing and selling snakes as well as taxiing people up and down the Salween River in his boat. He's approached by missionary Michael Burnett who requests that he and his group be ferried into Burma on a humanitarian mission to provide aid to Karen Tribespeople. Rambo refuses, claiming that without weapons, there will be no changes. But Michael's persistent associate Sarah Miller eventually persuades him.
During their trip, the boat is stopped by a trio of pirates driving a gunboat who demand Sarah in exchange for passage, which Rambo realizes will lead to her being repeatedly raped, tortured and most likely killed. After negotiations fail, Rambo draws a pistol and guns down the pirates, later returning to burn their bodies and vessel to conceal the evidence. Although his actions saved the missionaries, Michael is greatly disturbed and upon arriving in Burma, he informs Rambo the group will travel by road and will not need him for the return trip. He insists to Rambo that killing is never right and that he will report the incident upon their return. The mission goes well until the Tatmadaw, led by Major Tint, suddenly attack, slaughtering most of the villagers and two missionaries and kidnapping the rest, including Michael and Sarah. But when the missionaries fail to return after ten days, their pastor comes to ask Rambo's help to guide a hired team of five mercenaries to the village where the missionaries were last seen.
Rambo agrees and accompanies the mercenaries to the drop-off. He offers to help but is refused by the team's leader Lewis Reese, an ex-Special Air Service operative, who demands he stay at the boat. As the mercenary team arrives at the village, a squad of Tatmadaw soldiers show up with a group of hostages. The soldiers are playing a game of sorts with their prisoners, which goes as follows: Several land mines are tossed into a rice paddy through which the prisoners are forced to run. The soldiers place bets on which person will step on a hidden mine. The team takes cover, planning to standby and simply let the hostages be killed in order to avoid provoking a response from a much larger group of hostiles. Having disregarded Rambo as a simple boatman, the mercenaries are shocked when he appears and single-handedly wipes out the entire squad of Tatmadaw soldiers with his bow, allowing the hostages to escape unscathed.
Rambo convinces the team to avenge the massacre and save the hostages at the gulag type P.O.W.. camp after he witnesses the destroyed village filled with mutilated human and animal corpses. Rambo and the mercenaries stealthily infiltrate the camp and successfully locate and rescue Sarah and the other prisoners and flee with them. The Tatmadaw soldiers soon discover their hostages missing and organize a massive manhunt led by Major Tint. They manage to capture everyone except for Rambo, Sarah, and a mercenary known as "School Boy". Just as the captured mercenaries and hostages are to be executed, Rambo hijacks a jeep-mounted .50-caliber Machine Gun and opens fire on the soldiers, killing dozens in the process. Karen Rebells then show up and join the fight, turning the tide of the battle. Major Tint, realizing his defeat, attempts to escape the area, but Rambo intercepts and disembowels him.
Encouraged by Sarah's words, Rambo travels to the United States and returns home, walking along a rural highway past a horse farm and a rusted mailbox bearing the name "R. Rambo."