The story begins with a flashback. After the teenage Sonja rejected Queen Gedren's offer to be her consort, the queen had Sonja’s family murdered. Sonja was then viciously raped by the queen’s men, but she managed to inflict damage to Gedren’s face – causing a scar that she will later cover with a gold mask. A spirit (the goddess Scathach, though unnamed in the film) visits Sonja and gives her the ability to seek revenge on those who have wronged her.
In a temple, priestesses are about to destroy a powerful artifact called the Talisman (which was used to create the Earth, and only women can touch it and live) in order to prevent it from destroying everything else. Gedren’s army attacks the temple to steal the Talisman. A priestess named Varna manages to escape the temple and gets just far enough to reach Lord Kalidor – before she is shot in the back with an arrow -- and asks him to help find Red Sonja, who is apparently her sister.
Red Sonja has trained with a Chinese sword master, and that is where Kalidor finds her. Varna insists that Sonja find the Talisman and destroy it and then dies from her wound. Sonja is reluctant to accept help from Kalidor, but he follows close behind on her journey. Sonja encounters a few ignorant men on her way, which provokes fights and encourages her distaste for men – but she does manage to form a bond with the young prince Tarn and his servant Falkon.
The Talisman is placed in a room full of candles in Castle Berkubane on Gedren’s orders although she is advised against it. As Sonja’s assembly approach the castle Gedren recognizes her and wants her taken unharmed. While taking shelter in a watery cave from a storm caused by the Talisman, Sonja is faced by a metal monster; Kalidor wrestles it and she gouges out its eyes. After this Sonja accepts Kalidor. Sonja tells Kalidor that she ‘will never lie with any man unless he can defeat her in a sword fight’ and he later challenges her. Neither is able to defeat the other, but Sonja begins to have feelings for Kalidor.
As they infiltrate the castle the Talisman is growing unstable and it starts to break apart the castle. Sonja battles Gedren and disarms her hated enemy, shattering her sword and impaling her. Gedren then falls to her death, and Sonja hurls the Talisman in after her. The castle is destroyed and Sonja and her party manage to barely escape as a volcano rises from the ruins. The film ends with Sonja and Kalidor sharing a kiss.