A commercial depicts rapper Alpa Chino (Brandon T. Jackson) promoting his two brands -- the "Booty Sweat" energy drink and "Bust-A-Nut" candy bar -- while performing his hit song, "I Love Tha' Pussy." The first trailer shows action star Tugg Speedman's (Ben Stiller) latest film, Scorcher VI: Global Meltdown, a film so much like its five predecessors that even the trailer narrator sounds shaky about it. In another trailer, funnyman Jeff "Fatty" Portnoy (Jack Black) plays every member of "America's favorite obese family" in the highly flatulent The Fatties: Fart 2. The final trailer, for a film called Satan's Alley, features Australian "five-time Oscar winner" Kirk Lazarus (Robert Downey Jr.) and Tobey Maguire (as himself) as two monks who begin an impassioned affair.
We are taken, via the narration of John "Four Leaf" Tayback (Nick Nolte), into a gruesome battle of the Vietnam War. This is actually a scene from Tropic Thunder, a big-budget adaptation of Tayback's wartime memoir. Starring as the central platoon are Speedman, Lazarus, Chino and Portnoy, as well as young character actor Kevin Sandusky (Jay Baruchel). To play the role of Sgt. Lincoln Osiris, an African American, Lazarus has dyed his skin dark and refuses to break character. ("I don't drop character 'till I done the DVD commentary.") A take of Osiris crying over Tayback's (Speedman's) blown-off hands is ruined when Speedman is unable to cry and Lazarus dribbles uncontrollably into Speedman's face. The ruined take causes great frustration for the film's director, Damien Cockburn (Steve Coogan). The chaos is exacerbated when the film's pyrotechnics expert, Cody (Danny McBride), mistakes Cockburn's conniptions for a signal to set off several expensive explosions.
Faux Access Hollywood clips reveal that Speedman's career has been on a downward spiral. In an attempt at Oscar-bait, Speedman had played the "retard" title character in a flop called Simple Jack, which is considered one of the worst films of all time. Meanwhile, much to the horror of Speedman's agent, Rick "Pecker" Peck (Matthew McConaughey), Speedman doesn't even have TiVO on location. Elsewhere, Cockburn is berated in a meeting, via satellite TV, by the belligerent studio head Les Grossman (Tom Cruise). With filming a month behind schedule only five days into shooting, the media has dubbed the production "the most expensive war movie never made." Cockburn tries to explain that the prima donna stars are what's dragging the production down, but Grossman is not sympathetic. Later, the real "Four-Leaf" Tayback, who has hooks for hands, takes Cockburn aside and suggests that he drop the actors in a real jungle and use Cody's explosives to inspire real fear in them. Cockburn enthusiastically agrees.
Speedman, Lazarus, Chino, Portnoy and Sandusky are dropped off deep in the jungle with Cockburn, who sternly explains that he's going to use hidden cameras ("guerrilla-style") to capture real fear as they try to survive the real jungle. The actors' cell phones are destroyed by Cockburn and they're only given a map and a scene listing to guide them to the helicopter waiting to pick them up elsewhere in the jungle. As he walks away, Cockburn is blown to pieces by an old landmine. The actors, with the exception of Lazarus, are convinced that this is some of Cockburn's special effects trickery. The group is being watched by members of Flaming Dragon, a gang that manufactures and sells heroin. The Dragons believe the actors to be DEA agents and are put off to see Speedman making a gruesome display of Cockburn's severed head, , trying to convince the others that Cockburn's death is a trick. Believing the Dragons to be actors playing Vietcong, Speedman and company engage them in a gunfight (though Speedman's group is firing only blank rounds). Tayback and Cody, waiting on a nearby ridge and unaware of the real dangers below, blow a large explosive that causes the Dragons to retreat. (By coincidence, Speedman throws a prop grenade toward the Dragons almost simultaneously.) After the "fight scene," the actors march into the jungle to continue the "shoot." Tayback and Cody attempt to locate the now-deceased director. As the two argue and struggle (during which it is revealed that Tayback still has hands), they are surrounded and captured by the Dragons. In captivity, Tayback reveals to Cody that he's not really a veteran, has never left the U.S. before, and originally wrote the book as a "tribute."
The actors continue their rigorous trek through the jungle. It is revealed that Portnoy is a heroin addict, but disguises the drug as candy. One night, a bat swoops down and steals Portnoy's heroin. Speedman and Lazarus clash as Speedman insists on holding the map and continuing to do scenes. The two discuss their careers, with Lazarus backhandedly complimenting Speedman on acting "like the dumbest motherfucker who ever lived" in Simple Jack, before telling him that his mistake was playing Jack as being completely mentally disabled rather than just socially impaired. He tells Speedman to "never go full retard" in the future, as the Academy rarely gives Oscars to actors who do that. Meanwhile, Chino grows angry at Lazarus for continuing to offensively "act black," as he always stays in character. After Lazarus steals the map from Speedman, Sandusky (the only one with boot camp training) looks at the map and reveals that Speedman has been leading them the wrong way. The group splits from Speedman, who insists on continuing in the wrong direction.
Speedman's sanity seems to be slipping as he continues to act scenes from the film and even, much to his own distress, kills a giant panda one night, mistaking it for the enemy. Speedman is soon captured by the Dragons and taken back to their camp, which he believes is a prisoner of war camp mentioned in the Tropic Thunder script. When he is tormented by the gang's prepubescent leader Tran (Brandon Soo Hoo), Speedman stutters and is recognized as the star of Simple Jack, which turns out to be the only film the Dragons have seen, leaving them awestruck at meeting their superstar hero. They force Speedman to perform scenes from the film many times a day. Speedman even gets a toddler hanger-on, a "son" of sorts, whom he names "Half-Squat." The Dragons call Peck, Speedman's agent, and explain that they are holding Speedman for ransom. Peck brings this to to the attention of Les Grossman, who rabidly curses at the Dragon on the other end of the line. That night, Grossman learns the Dragons are heroin manufacturers and receives another call for increased ransom; Grossman tells them that they can kill Speedman. He tells Peck that they can benefit by letting the Dragons kill Speedman and collecting the insurance; he offers the torn agent a share of the profits, suggesting he can buy a G5 (Gulfstream) luxury plane.
Meanwhile, among the actors, tension grows between Lazarus and Chino. Portnoy has begun to hallucinate due to his withdrawal and has to be tied to a water buffalo and then, at his own insistence, to a concrete column. Soon, Portnoy is pleading with the others to untie him. During a conversation about women "back home," Sandusky expresses envy of Lazarus because he dated Jennifer Love Hewitt. In the course of the conversation, Chino is revealed to be a closet homosexual (he is in love with someone named Lance). They soon stumble upon Flaming Dragon's heroin factory. After seeing Speedman being tortured, they plan an ambush based on the film's plot.
Lazarus impersonates a farmer speaking broken Chinese who has caught Portnoy (again tied to his water buffalo) on his farm, distracting the armed guards as Chino and Sandusky sneak into the building the captives are held in. After the gang notices inconsistencies in Lazarus' story, the actors open fire on the gang, temporarily subduing them despite being armed with only blank ammunition. Portnoy kidnaps the gang's child leader Tran in order to be led to the drugs. After barely defeating the young crime lord in combat, he finds an enormous mound of heroin; however, reflecting upon his failing low-brow movie career, he rejects the heroin and uses it instead to subdue two guards. Tayback and Cody join the fighting, using Cody's flamethrower and explosives against the Dragons.
However, Portnoy, Chino, and Lazarus find Speedman brainwashed. He's performing to an approving crowd several times a day and now believes he is home. Before they can snap him out of it, Lazarus breaks down, revealing his similar inner struggle with his own identity. With Chino and Sandusky's help, Lazarus drops the Sgt. Osiris character, in both make-up and accent, and becomes his white Australian self. However, even Sandusky's inspiring words cannot break Speedman's trance and they have to drag him away as they attempt to escape in Cody and Tayback's recaptured helicopter. The Dragons quickly reassemble, chasing the actors across a bridge which Cody has rigged to blow up. Speedman asks to remain behind with his "family," but quickly returns with Half-Squat (on his shoulder and stabbing him in the neck) and the murderous Dragons in pursuit. Tayback detonates the bridge just in time for Speedman to get across. Lazarus goes to rescue Speedman from the rubble. They swear friendship and Speedman is finally able to cry. However, just as they get in the helicopter with the others, Tran appears with a rocket launcher. As he shoots at the helicopter, Peck inexplicably appears with Speedman's TiVO and deflects the rocket with it.
A documentary of the botched production is made from the hidden camera footage and results in a multiple-Academy-Award-winning blockbuster film. The film breaks Speedman's streak of flops and he wins the award for Best Actor, which is presented by his friend Lazarus. Along with Portnoy, Sandusky is present with Jennifer Love Hewitt on his arm and Chino attends with Lance Bass (the "Lance" mentioned earlier) on his arm. Les Grossman does a hip-hop dance in celebration of the hit.