It was 1920 in the southwest West Virginia coal fields, and, as the narrator recalls, “things were tough.” In response to efforts by miners to organize into a labor union, the Stone Mountain Coal Company announces it will cut the pay miners receive, and will be importing replacement workers into town to replace those who join the union. The new workers are African Americans from Alabama and are coming in on the train, but the train is stopped outside town and the black men are told to get off. Derided as “scabs“, they are then attacked by the local miners, but manage to get back on the train and continue their journey.

Witnessing the attack is Joe Kenehan (Chris Cooper), a passenger on the train and an organizer for the United Mine Workers. He arrives in Matewan and takes up residence at a boarding house run by a coal miner’s widow, Elma Radnor (Mary McDonnell), and her 15-year-old son, Danny (Will Oldham), who is also a miner and a budding Baptist preacher.

Kenehan and the local leader, Sephus, then go around to meet the rest of the black miners as well as a contingent of Italians to try to bring them into the union, and are met with reluctance. But later, caught between the company’s guns and the local miners, the blacks and the Italians throw down their coal shovels and take up the union cause. C. E. Lively, an agent provocateur for the coal company who has infiltrated the union, tries to goad the miners towards violence, which Kenehan says will only weaken their cause. The infiltrator also pens a note to the Baldwin–Felts Detective Agency, which provides armed agents as strike breakers to the coal company, saying there is a “Red” organizer in town.

The next day, two Baldwin–Felts men, Hickey and Griggs, show up in town and take up residence at the Radnor boarding house. Danny at first refuses to give rooms to Hickey and Griggs, but Kenehan voluntarily moves to the hotel, freeing up a room for the two men and averting trouble for Mrs. Radnor. Hickey and Griggs then start their campaign against the union by forcibly evicting miners from company-owned houses in town. Mayor Testerman and Police Chief Sid Hatfield refuse to let them be evicted without eviction writs from Charleston. Hatfield deputizes all the men in town and tells them to go home and come back with their guns.

The Baldwin–Felts men then turn their attention on the strikers’ camp outside town, where the miners and their families are living in tents. At night, the armed strikebreakers fire shots into the camp, injuring some strikers. The next day, they enter the camp to demand that all food and clothing purchased at the company store with scrip be turned over to them. But then some armed foothill people, whose land was taken by the coal company, enter the camp. Expressing disdain for the noise caused by the gunmen’s automobile the night before, their presence and sympathy for the miners compels the Baldwin–Felts men to leave empty-handed. One of the hill people is carrying a caplock rifle and when asked mockingly by a departing Baldwin–Felts agent if it was a relic from the Spanish–American War, he replied, “Nope, War Between the States“.

The slow arrival of the union’s thinly stretched strike funds tests the patience of Danny Radnor and other miners who become disillusioned and turn to violence in spite of Kenehan’s warnings. The miners are involved in a night-time shootout with the agents and Sephus is wounded. He is rescued by some hill people but not before he recognizes Lively as the infiltrator.

Lively tries to drive a wedge between Kenehan and the miners by convincing a young widow, Bridey Mae Tolliver, to falsely accuse Kenehan of sexual assault, and he plants a letter which makes Kenehan appear to be the infiltrator. Danny Radnor overhears Hickey and Griggs talking about the scheme but is caught and held by the two men. The agents intend to keep a watchful eye on Danny, but become drunk and are not paying attention that night when Danny, while preaching at the Freewill church, relates a parable about Joseph that convinces the miners that they have been deceived by a false story. One of the miners hurries to the camp to find Few Clothes (James Earl Jones), who had drawn the short straw for who would kill Kenehan for his assumed treachery. Few Clothes tells Kenehan he is there to guard him when he comments on the gun the black miner has. Asked whether he knows how to use it, Few Clothes says yes, that he was in the Spanish–American War of 1898. Kenehan tells him that he was in Fort Leavenworth Military Penitentiary in 1917, and saw Mennonites imprisoned for refusing to bear arms passively resist having their beards shaved and rip the buttons off their prison clothes, since all these were against their religion. They were punished by being handcuffed to cell bars for eight hours per day, until the cuffs had cut into their wrists and caused gangrene. Despite it all, they ripped off re-sewn buttons with their teeth, not one giving up. Kenehan says he never saw braver men, and ironically they were in there for refusing to fight. This tale of bravery and injustice leaves Few Clothes conflicted and unsure about his mission to execute Kenehan. Another miner arrives and tells Few Clothes the truth and Kenehan’s execution is called off just in time. Meanwhile, Sephus has made his way back to town and informed the others of Lively’s betrayal, furiously burning down his restaurant. Lively flees town by swimming across the Tug Fork River.

Later, Hillard Elkins, a young man and a friend of Danny, is kidnapped by the Baldwin–Felts agents. Elkins is tortured and promised freedom if he gives up the names of five union miners. Elkins instead gives the names of five men buried in a nearby cemetery who perished in the coal mines and the agents kill Elkins by cutting his throat. Lively, who has rejoined the Baldwin–Felts agents, recognizes the names as those of men who had died in a mine five years earlier.

The situation between the Baldwin–Felts men and Chief Hatfield reaches a boiling point with the arrival of reinforcements with orders to carry out the evictions. The mayor tries to negotiate as Kenehan comes running to try to stop the fight. The sudden movement sets off a climactic gunfight between the exposed mercenaries and the armed townspeople firing from barricades and rooftops. Hatfield shoots two men and survives the battle, but Kenehan is killed and the mayor is shot in the stomach. Griggs is brought down, while Hickey escapes to Elma Radnor’s boarding house, where he is shot and killed by Elma Radnor. Seven Baldwin–Felts men and two townspeople are ultimately killed.

In the epilogue, the narrator (revealed to be an elderly Danny recalling those days in “Bloody Mingo”) recounts that Mayor Testerman succumbed to his wounds and the mayor’s wife married Chief Sid Hatfield. But Hatfield was later gunned down in broad daylight on the steps of the McDowell County Courthouse in Welch, with Lively stepping up to deliver the coup de grâce.