Nino Brown (Wesley Snipes) is an up-and-coming drug pusher. His brother and right-hand-man, Gee Money (Allen Payne) introduces Nino to a new drug: freebased "crack" cocaine, which Gee says is cheaper to produce and more potent than regular cocaine and is taking the poor neighborhoods of New York by storm. Nino and Gee decide to take over an entire apartment building in Harlem called The Carter for their base of operations. He and Gee and Duh Man (Bill Nunn) go about getting cooperation through violence and coercion. Together they drive out any protesting tenants and other crime lords, terrorizing and shooting them openly on the streets in full view of local witnesses. The name their organization the CMB for "Cash Money Brothers."
After a few years Nino had expanded his empire and crack addiction has reached epidemic proportions. Detective Stone (Mario Van Peebles) wants to bring Nino to justice, but no one on the police force is crazy enough to go against Nino. Stone decides to call in Scotty Appleton (Ice-T), a plain clothes cop who is currently serving a suspension for shooting an unarmed suspect who ran during a failed drug deal. Stone convinces Scotty to infiltrate Nino's organization, with the help of another burned-out cop, Nick Paretti (Judd Nelson).
Frankie Needles (Anthony DeSando) visits Nino to deliver a message from the mob - Nino isn't paying the percentage any more. Nino sends him away scornfully, and Frankie advises Don Armeteo (John Aprea), the mob boss. Meanwhile, Scotty and Paretti watch Nino giving out food to the poor, including Pookie (Chris Rock), the young addict Scotty had shot. Scotty recruits Pookie, weaning him off crack and rehabilitating him. Pookie obtains a low-level job working for Gee Money at the Carter. Pookie later explains how to get into the hotel and the setup for distributing crack. Park (Russell Wong) has some hi-tech toys for Pookie to surveil the premises, including a camera hidden in a belt buckle.
Nino is celebrating his success and expressing his friendship with Gee Money. However, he has eyes for Gee Money's girlfriend, Uniqua (Tracy Camilla Johns). Nino's neglected girlfriend, Selina (Michael Michele) becomes jealous.
Pookie gets inside the Carter, doing menial jobs at first. However Gee Money doesn't trust him fully. Pookie lands a job in the drug distribution area, but starts sneaking drugs and becomes addicted again, acting obnoxiously. Gee Money finds the surveillance device and realizes he's a plant. Gee Money evacuates the area and sets explosives on Pookie's dead body to destroy the building. Scotty and his men enter and try and find evidence and defuse the bomb attached to Pookie with only a few seconds to spare.
Nino is enraged, and threatens Gee Money. Scotty blames himself for Pookie's death, and vows to continue the investigation, despite Stone's orders. Paretti agrees to help. They enlist Frankie to arrange a meet with Gee Money, posing as big-time buyers who want to cut a side deal with Gee. Gee himself has become addicted to crack and talks to Nino on the phone about how Scotty's product is of a greater purity than what they sold for years. Nino decides to accept the deal and tells Gee that if anything goes wrong, he'll personally kill him.
Scotty gets in with Nino, even protecting him from an irate neighborhood man (Bill Cobbs). He plants seeds of doubt into Nino's mind about Gee Money. One night Scotty and Nino hang out on the roof talking about how they both came up. Nino tells Scotty about how he joined his first gang: the gang leaders ordered him to kill someone with one hitch; it had to be a total stranger. Nino, high on coke, killed a woman walking home at night with a bag of groceries. Scotty realizes it was his own mother. Scotty decides to hold his fury in check until he and his crew can bust Nino for trafficking and higher crimes.
Paretti breaks into Nino's safe during a wedding Nino and Scotty attend and finds financial records on disk. The Italian mob shows up at the wedding disguised as caterers & tries to kill Nino -- Scotty, who has a clear shot at Nino during the gunfight, watches as Nino uses a child as a shield to escape. Keisha is killed during the attack, and a war between Nino's Cash Money Brothers (CMB) and Don Armeteo's gang erupts.
Scotty and Paretti meet with Stone and arrange to set Nino up. During the deal, Kareem (Christopher Williams) identifies Scotty, remembering Scotty shooting Pookie on the street, and a shootout ensues. Park is killed, then Duh Man, and Paretti saves Scotty's life.
Gee Money and Nino meet later, and Gee accuses Nino of forgetting their friendship. Nino regretfully kills him. Scotty and Paretti track him down in his apartment and attack him, Scotty forcing Nino & himself out of a second story window. Scotty beats him up and arrests him at the feet of the old man who'd threatened Nino. While he has Nino pinned to the sidewalk, ready to shoot him to death, he tells him that he knows Nino murdered his mother. Paretti talks Nino down, preventing him from killing the gangster.
Nino stands trial and to the astonishment of the courtroom, accuses Kareem of being the head of CMB. He pleads to a lighter sentence, but is killed by the Old Man as he leaves the courtroom. Scotty and Paretti leave, satisfied, and the credits roll after a title card explaining that gangsters like Nino exist in every major city in America and that the crack epidemic will only get worse.