In the 1980s, a rivalry developed between two boxing champions, Henry Razor Sharpe (Sylvester Stallone) and Billy the Kid McDonnen (Robert De Niro). Both fought each other in only two matches, Kid winning the first match and Razor winning the second match. Before the third and tie-breaking match could occur, Razor finds out that Kid slept with his girlfriend Sally Rose (Kim Basinger) and got her pregnant; in retaliation, he announces his retirement, to Kid's fury.
Thirty years later, Razor is working in a shipyard and Kid has opened a restaurant; Kid retains a celebrity status and dreams of facing Razor one more time, but Razor has moved on and leads a simple, secluded life. One day, boxing promoter Dante Slate, Jr. (Kevin Hart) comes to Razor with a proposition: for fifteen thousand dollars, he will do motion-capture for a boxing video game. Razor's best friend and former trainer Louis Lightning Conlon (Alan Arkin) is in a nursing home, so Razor reluctantly takes the job to cover the nursing home bills. At the studio, Razor runs into Kid, who was also going to do motion-capture for the game; Kid provokes Razor into a fight, and the two destroy the motion-capture studio brawling with each other.
Razor and Kid end up in jail, and neither of them gets paid for their video game work. However, the footage of their fight becomes an Internet sensation, and this gives Dante an idea: Grudgement Day, a final tie-breaker between Razor and Kid. Razor flatly refuses to fight Kid again, but when he discovers that he has been laid off by his shipyard (nothing personal, he was one of many) he has no choice but to accept Dante's offer.
Dante launches a press conference, but as few people show interest or turn up he decides to promote the match through using lots of product placements, endorsements and public appearances by Razor and Kid at special events (particularly a mixed martial arts tournament and a skydiving event). This strategy works, mostly because most people enjoy watching the two boxers squabble and almost always fight with each other at those events. Besides this, the two boxers have to undergo training regimes that their aged bodies can barely handle.
In the middle of all this, Sally Rose comes back into the lives of Razor and Kid. BJ, a football coach and Kid's son with Sally, meets Kid despite her warning him that Kid only cares about himself. At first the two don't get along, with Kid being dismissive of his son and BJ not taking it kindly; however the two slowly improve on their relationship, with BJ providing some training tips. Kid finds his trainer doesn't think he has a chance at winning, and fires him and takes BJ on as his own personal trainer; and BJ himself gets closer to Kid, even introducing him to his own son Trey (Camden Gray), with whom Kid immediately hits it off.
Meanwhile, Sally meets Razor and wishes to get back with him. Razor is unsure about reconnecting with Sally after what she did with Kid, but Lightning (reinstated as Razor's personal trainer) tells him he should accept part of the blame for Sally straying as in his youth he had been too much of a workaholic to really spend time with her. Razor meets Sally and apologizes for walking away from her, and the two reconcile. Sally herself confesses that she had only slept with Kid to get back at Razor because she had seen him with another woman; she later learnt that nothing had happened, but by then it was too late.
Meanwhile, BJ entrusts Trey to Kid for dinner and a movie, but instead Kid heads to his bar and leaves Trey there while he goes to have sex with a woman in his car. Hours later, a bored Trey gets into the same car, and when he sees Kid and the woman he freaks out and starts the car moving; fortunately Kid manages to stop the car and prevent an accident, but ends up getting arrested. BJ bails Kid out, but is furious with him for having neglected his son and put his life at risk and refuses to train Kid any further.
When Razor and Sally drive home, they get into a car accident. They suffer no major injuries, but a worried Lightning confirms what he had suspected: Razor is blind in one eye. Lightning and Sally keep it a secret, but convince him to withdraw from the match for his own health and safety. Upon hearing that Razor has backed out, Kid angrily tracks down Razors house and rails at him for chickening out on him again, eventually simply begging him to go through with the match as this one shot at glory is the only worthwhile thing he has in life.
After long deliberation, Razor decides to fight. He meets with BJ (no issues there) and Sally, and explains that Kid made him walk away from her and boxing, his two greatest loves in life; he got her back, but he wants to box one last time. Kid meets BJ and apologizes for what happened with Trey; he presents him with a scrapbook containing pictures and articles of BJ, showing that he really did take an interest in him. BJ accepts the apology, and returns to training Kid.
The time for the fight arrives, and Razor and Kid brutalize each other as the rounds go on, neither giving the other any quarter. Kid is able to secure an advantage by punching Razors blind eye, but Razor refuses to concede. Around the time of the final round, Razors face is a mess. A fearful Sally tells the truth to BJ, who passes it on to Kid and urges him to concede the match: the fight and victory Kid dreamed of mean nothing as hes fixed to win, and the best way for him to go out is as a sportsman, respectfully and gracefully. Kid refuses to relent and pummels Razor, but after knocking down Razor he has a change of heart and helps up Razor. Razor turns the fight to his favour and knocks down Kid, but also helps him up.
The film ends with the two still standing at the end of the match, both having reconciled their differences (but both still dislike each other). Razor wins the tie-breaker on points, and becomes a hero who got back the girl and prize of his dreams, while Kid has let go of his own dreams in favour of a family to rely on.