The film begins in Mexico, where police officer Javier Rodriguez Rodriguez (Del Toro) and his partner, Manolo, stop a drug transport and arrest the couriers. Their arrest is interrupted by General Salazar (Milian), a high-ranking Mexican official. The general decides to hire Javier and instructs him to locate and apprehend Frankie Flowers (Collins, Jr.) a notorious hit man for the Tijuana Obregón Drug Cartel.
Meanwhile, Robert Wakefield (Douglas), a conservative Ohio Judge, is appointed to be head of the President's Office of National Drug Control, taking the title of Drug Czar. Wakefield is warned by his predecessor and several influential politicians that the war on drugs is unwinnable. Unbeknownst to Wakefield, his honor student daughter, Caroline (Christensen) is using cocaine and falls victim to drug addiction when she is introduced to freebase cocaine by her boyfriend, Seth (Grace). She and Seth are arrested when another student at her high school overdoses on drugs and they try to dump him anonymously at a nearby hospital. Robert finds out that his wife Barbara (Irving) has known about their daughter's involvement with drugs for over six months.
In the third main story, which is set in San Diego, an undercover Drug Enforcement Administration (DEA) investigation led by Montel Gordon (Cheadle) and Ray Castro (Guzmán), arrest Eduardo Ruiz (Ferrer), the high-stakes dealer posing as a fisherman. In the process, Ruiz is hospitalized and decides to risk the dangerous road to immunity by giving up his boss: drug lord Carlos Ayala (Bauer), the biggest distributor for the Óbregon brothers in the United States. Ayala is prosecuted by a tough prosecutor hand selected by Wakefield in an attempt to send a message to the Mexican drug organizations through a conviction against the drug lord.
Flowers is tortured and eventually gives Salazar the names of several important members of the Óbregon Drug Cartel, who are arrested in a large effort by police and army soldiers. Javier and Salazar's efforts start to cripple the Óbregon brothers cocaine outfit, but Javier soon discovers that Salazar is a pawn for the Juárez Cartel, the rival of the Óbregon brothers. The entire Mexican anti-drug campaign is a fraud, as Salazar is wiping out one cartel, not out of duty, but rather because he has aligned himself with another cartel for profit.
Wakefield realizes that his daughter is a drug addict and finds himself caught between his demanding new position and his worrisome family life. When he heads to Mexico, he is encouraged by the successful efforts of Salazar hurting the Óbregon brothers. When he returns to Ohio, Robert learns that his efforts to see Caroline rehabilitated have failed, and she escaped into the city where no one knows her location. Secretly, she's forced to prostitute herself and rob her parents to procure money for drugs.
As the trial against Carlos Ayala begins, Carlos' wife, Helena (Zeta-Jones) learns of her husband's true profession. With her husband facing life imprisonment and death threats against her only child, she decides to hire Flowers to assassinate Eduardo Ruiz. She knows that killing Ruiz will effectively end the trial nolle prosequi.
Javier's partner, Manolo sells the information to the DEA, but is killed for his betrayal. Javier, who can no longer stomach working for Salazar, decides to cut a deal with the only non-corrupt organization he has access to the Federal government of the United States and the Federal Bureau of Investigation. In exchange for his testimony, Javier requests electricity in his neighborhood, so that kids can play baseball at night rather than be tempted by street gangs and crime. General Salazar's secrets are revealed to the public. He is arrested and tortured to death shortly after.
Wakefield begins a search for his daughter and drags along Seth. After being threatened and nearly killed by a drug dealer, he breaks into a seedy hotel room in Cincinnati and finds a semi-conscious Caroline prostituting herself to an older man. Wakefield returns to Washington, D.C., to give his prepared speech on a "10-point plan" to combat the war on drugs. In the middle of the speech, he falters, then tells the press that on a war on drugs is a war against many of our own family members, which he cannot endorse. He quits his job and heads home.
Flowers's assassination attempt on Ruiz fails, when he himself is assassinated for his betrayal by a sniper working for the Óbregon Cartel. Helena, knowing that Ruiz is soon to testify, then makes a deal with Juan Óbregon (Bratt), lord of the drug cartel, who forgives the debt of the Ayala family and murders Ruiz. Carlos Ayala is released, much to the discomfort of Montel Gordon, who lost his partner, Castro, when Frankie tried to assassinate Ruiz with a car bomb. Soon after, Montel bursts into the Ayala residence and illegally plants a microphone under one of the tables, before being kicked out.
Robert and Barbara begin to go to Narcotics Anonymous meetings with their daughter, to support her and everyone else there. Javier takes the media to Mexico and explains what he can about the widespread corruption in the police force and army. The film concludes with him watching some Mexican children playing baseball at night, at their new stadium.
