On December 16, 1985, in a remote wooded cabin, a mob informant is under protection by the FBI. They are ambushed by a hit squad who brutally slaughter the bodyguards and the witness. One of the agents killed is Blair Shannon, son of FBI Agent Harry Shannon (Darren McGavin), who vows revenge.
After capturing a man posing as a motorcycle cop, small-town sheriff Mark Kaminsky (Arnold Schwarzenegger) goes home to his alcoholic wife Amy (Blanche Baker), who resents what their lives have been reduced to and in a drunken fit throws a cake at him. Kaminsky once worked for the FBI, but five years ago he brutally beat a suspect who "molested, murdered, and mutilated" a young girl. He was given the option to "resign or be prosecuted" by ambitious prosecutor Marvin Baxter (Joe Regalbuto), who is now Special Federal Prosecutor heading up a committee investigating the dealings of Luigi Patrovita (Sam Wanamaker), the strongest of the Chicago Outfit Dons.
Shannon calls Kaminsky in with an unsanctioned and possibly illegal assignment: to infiltrate Patrovita's organization and "tear it up". Harry cannot do anything officially, and the FBI has a leak who has been getting agents killed, which is why Kaminsky must go in secret. Harry dangles the prospect of Kaminsky being reinstated with the FBI, leading to Kaminsky faking his own death in a chemical plant explosion and posing as convicted felon Joseph P. Brenner. He manages to get an audience with Patrovita's right-hand man Paulo Rocca (Paul Shenar), and convinces them of his worth by harassing Martin Lamanski (Steven Hill), a rival mob boss who is trying to move in on his former boss Patrovita's territory. While at Patrovita's casino, hidden in a basement level of a high class hotel, he makes the acquaintance of Monique (Kathryn Harrold), who works for Rocca's top lieutenant Max Keller (Robert Davi).
Kaminsky continues to work his way into the good graces of the Patrovita family, including devising a plan that recovers $100 million of heroin and cash seized by the feds from one of Patrovita's hideouts and simultaneously assisting in Lamanski's assassination. Keller isn't convinced that 'Brenner' is who he says and manages to find proof of the deception, showing Kaminsky's photo to a police informant who previously arrested the real Brenner. The leak the FBI has been looking for is revealed to be Baxter, who is forced to stay close to Patrovita. Kaminsky accompanies Keller to a cemetery for a hit job, but discovers that the target is Harry Shannon, which causes him to blow his cover. Kaminsky and Shannon manage to kill Keller and another hit man, but Shannon is severely wounded in the exchange.
Kaminsky escapes, assisted by Monique (who has grown fond of him). He tells her to go to the airport and wait for him. He then suits up, gathers an arsenal of firearms and raids one of Patrovita's gravel pits, killing everyone (to the tune of "Satisfaction" by the Rolling Stones) and stealing a large amount of drug money. He then sets off for Patrovita's casino, where he embarks on a killing spree, single-handedly wiping out all his soldiers, including the men directly responsible for the murder of Blair and his fellow FBI agents. Rocca and Patrovita retreat to a back room, but Rocca is cut down in a barrage of gunfire. Patrovita flees into an office pleading for his life, but Kaminsky mercilessly guns him down. On his way out, he encounters a whimpering Baxter and offers him a gun with the same line Baxter gave him five years earlier: "Resign, or be prosecuted. Any way you want it." Kaminsky starts to walk off, and when Baxter attempts to shoot him, Kaminsky turns and shoots Baxter dead in self-defense. After driving to the airport, Kaminsky hands a duffel bag containing $250,000 in cash to Monique and gets her on a chartered plane, telling her she is free and can start a new life with no obligations to anyone.
The epilogue shows Kaminsky visiting Shannon, who was crippled as a result of the gunshot wound to his back and has been refusing any therapy or rehabilitation. Kaminsky has been reinstated into the FBI, and his reunion with Amy has now led to her being pregnant. Kaminsky wants Shannon to be godfather to the child, but only if Shannon will attempt to walk. Shannon cannot walk easily at first and angrily asks Kaminsky to leave him be, but then Kaminsky tells Shannon he must show the same strength that made him a good father to Blair. Inspired by the love for his son and his gratitude to Kaminsky, Shannon makes a strong effort and eventually manages to walk a few feet on his own, embraced by a smiling Kaminsky.
The film was originally produced so that Dino De Laurentiis could inject some quick cash into his long gestating project Total Recall, a film for which Laurentiis had owned the rights, and one in which Schwarzenegger would later take the leading role. Partly due to the poor box office performance of Raw Deal, De Laurentiis would eventually file for bankruptcy and the rights to Total Recall were sold to Carolco. At the time, Schwarzenegger was still under contract with De Laurentiis for a number of Conan the Barbarian sequels, and in exchange for dissolving this multi-picture agreement, Schwarzenegger agreed to star in Raw Deal. Initially, Schwarzenegger was more interested in doing Total Recall but De Laurentiis objected as he didn't feel that Schwarzenegger was right for the leading role. Patrick Swayze was cast before De Laurentiis' bankruptcy.
Filming was done on location in Chicago, Castle Hayne, North Carolina and Wilmington, North Carolina at the De Laurentiis Entertainment Group Studios. The film was originally intended to be called "Let's Make a Deal", and during production and filming this was changed to "Triple Identity". This referenced the fact that the lead character goes from being an FBI agent, to a small-town sheriff, and then to an undercover operative. In the end Raw Deal was the chosen title, in an attempt to make the film sound more like a regular action movie.
Raw Deal made $5.4 million in 3 days. It went on to gross $15,946,969 in the US, and an additional $2,183,216 in Germany.
Though the film doubled its production budget at the box office, its earnings were a disappointment.
The film received a negative reception. Writing in the Los Angeles Times, Sheila Benson began, "Has it come to this? That we can feel vaguely cheered that Raw Deal (citywide), where the bodies again pile up like cordwood, is a better made movie than Cobra?" However, she praised Schwarzenegger, saying that his strength as an actor is "not that he can toss grown men over ceiling beams, but that he has a vein of sweetness and self-deprecation that no amount of mayhem can obliterate ... it has shone from him since Pumping Iron, it has allowed him to surmount silly and unwise pieces of action (such as the drunk scenes in one of the Conans and here), and even his own awkwardness as an actor".
Raw Deal holds a rating of 25% on Rotten Tomatoes.
Raw Deal was released to DVD by 20th Century Fox Home Entertainment on April 19, 2005 as a Region 1 widescreen DVD and to Blu-ray on June 28, 2010 by Optimum Home Entertainment as a multi-region widescreen Blu-ray DVD.