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Mick O'Brien (Sean Penn) is a 16-year-old Irish-American hood from Chicago. While most of Mick's crimes involve snatching purses, vandalism, and getting into brawls, he aspires for bigger and better things, which leads him to attempt ripping off a rival hood, Paco Moreno (Esai Morales). Everything goes wrong: Mick's partner and best friend Carl (Alan Ruck) is killed, and Mick, while trying to escape the police, accidentally runs over and kills an eight-year-old boy who happens to be Paco's kid brother. Because he's underage, Mick is sent to the Rainford Juvenile Correctional Facility rather than a state prison for adults. However, as the film makes clear, this "juvenile correction facility" is not a place where troubled kids are reformed, but rather a place where they grow tougher, angrier, and more prepared for a life of adult crime. Most of the wardens and counselors seem to have lowered themselves to the role of zookeepers, with the exception of Ramon Herrera (Reni Santoni), a former gang member who talks tough to the inmates, but holds out hope for some of them, especially Mick.
 
Mick's cellmate is Barry Horowitz (Eric Gurry), a small, wiry Jewish kid who firebombed a bowling alley in a revenge attempt to scare some kids who beat him up (for hitting on their girlfriends). Their cell block is dominated by a pair of brawny sadists named "Viking" Lofgren (Clancy Brown) and Warren "Tweety" Jerome (Robert Lee Rush). As soon as their alpha male status is established, Mick takes his first step toward defining himself by standing up to them. To get revenge for his brother's death, Paco rapes Mick's girlfriend, J.C. (Ally Sheedy), leaving her bitter and humiliated. Mick is desperate to see her, so he and Horowitz escape the double perimeter fence during football practice via the use of corrosive placed on the fences, making them weak enough to kick open. Mick escapes, but Horowitz falls on barbed wire and is then caught where a counselor beats him up for calling him names and escaping. Ramon senses that Mick had gone to J.C.'s house, and soon picks him up. He then takes him on a trip to a maximum security prison to show what's in store for him, should he continue down the path of crime.
 
When the police are alerted to the rape and arrest Paco, he is sentenced to the same dormitory at Rainford that Mick is in. The staff are truly aware of this potential danger, but no other reform school has a vacancy. Meanwhile, in an attempt to kill Paco, Horowitz plants fertilizer into a radio that he has placed in Paco and Viking's cell. When the charge explodes prematurely and only injures Viking, Horowitz is condemned to permanent solitary confinement, a fate he fears more than any other. Eventually, Paco's transfer is arranged, so he plans his showdown with Mick for the night before. In order to avoid staff intervention, Herrera, who was on night patrol, is injured by Paco after he pretends to have a ruptured appendix. The door into the cells is then barricaded, and the entire dormitory is aroused by the brawl. Eventually, Mick comes out on top, and the film ends with him very nearly killing Paco but resisting at the last second. He then drags a beaten Paco in front of the caged Ramon and other detention officers and heads back to his cell, crying in remorse.