Jerry Lundegaard's inept crime falls apart due to his and his henchmen's bungling and the persistent police work of pregnant Marge Gunderson.
In the winter of 1987, Minneapolis automobile salesman Jerry Lundegaard (Macy) is in financial trouble. After being introduced to criminals Carl Showalter (Buscemi) and Gaear Grimsrud (Stormare) by Native American ex-convict Shep Proudfoot (Reevis), a mechanic at his dealership, Jerry travels to Fargo, North Dakota, and hires the two men to kidnap his wife Jean (Rudrüd) in exchange for a new car and half of the $80,000 ransom. However, Jerry intends to demand a much larger sum from his wealthy father-in-law, Wade Gustafson (Presnell), and keep most of the money for himself.
GMAC has been threatening to withdraw loans for cars at the dealership Jerry manages after accounting irregularities. Jerry has been trying to raise money by promoting a real estate deal to Wade. Jerry tries to call off the kidnapping after Wade agrees to the investment, but he is too late, and, as it turns out, Wade intends to buy the property himself, giving Jerry only a finder's fee, which is not enough to pay off his debts.
Carl and Gaear kidnap Jean, but on their way through Brainerd, a Minnesota State Patrol officer stops them because of the car's license plates. When Carl's attempt to bribe the trooper fails, Gaear kills the trooper. As Carl is moving the trooper's body off the road, he is seen by a couple passing by in their car. Gaear chases the couple, who lose control of their car and swerve off the road, enabling Gaear to kill them.
The deaths are investigated by local police chief Marge Gunderson (McDormand), who is seven months pregnant. She deduces the chain of events and follows the leads that arise, interviewing two prostitutes who serviced the criminals and tracing the license plates on their vehicle to Jerry's dealership. After being informed that the criminals telephoned Shep Proudfoot, she drives to Minneapolis, but acquires no information in interviews with Shep and Jerry.
Jerry contacts Wade, saying that the kidnappers insist on dealing only with Jerry. Wade accepts this arrangement at first, but later changes his mind. When he meets with Carl at a parking garage, he refuses to give him the money until his daughter is returned. Angered by his demands and unexpected appearance, Carl shoots Wade. Before he dies, Wade shoots Carl in the face. Carl then kills the garage attendant on his way out. Jerry arrives at the scene just after Carl leaves. Later, Carl discovers that the bag he took from Wade contains a million dollars and buries most of the money by the side of the highway. At the hideout, Gaear has killed Jean, and, in a dispute over the car, he kills Carl with an axe.
Before leaving town, Marge questions Jerry again, asking him about the car used in the Brainerd murders. When she asks to talk to Wade, Jerry storms out of the office, saying he will check the lot for the missing car but flees instead. Marge phones the state police to find and arrest him, then, following up on a tip, she drives to the lake, sees the kidnappers' car, and arrives just in time to see Gaear feeding the last of Carl's body into a wood chipper. Gaear tries to flee, but Marge shoots him in the leg and arrests him.
Jerry is later arrested in a motel outside of Bismarck, North Dakota. Marge and her husband, Norm (Lynch), sit in bed together discussing his artwork, which has been selected as the design for a postage stamp.
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