Lieutenant Colonel Nathaniel Serling (Denzel Washington) was involved in a friendly fire incident in Al Bathra during the Gulf War. He was an M1 Abrams tank battalion commander who, during the nighttime confusion of Iraqi tanks infiltrating his unit's lines, gave the order to fire, destroying one of his own tanks and killing his friend Lieutenant Boylar. The details were covered up (Boylar's parents were told that their son was killed by enemy fire), and Serling was shuffled off to a desk job. Later, he is assigned to determine if Army Captain Karen Emma Walden (Meg Ryan) should be the first woman to receive (posthumously) the Medal of Honor for valor in combat. A Medevac Huey commander, she was sent to rescue the crew of a helicopter that had been shot down. Finding them under heavy fire from an Iraqi tank and infantry, her men dropped an auxiliary fuel bladder on the tank and ignited it with a flare gun.
Shortly after, her helicopter was also hit and downed. The two crews were unable to join forces. The survivors were rescued the next day, but Walden had been killed. At first, everything seems to be straightforward, but Serling begins to notice inconsistencies between the testimonies of the witnesses. Walden's co-pilot, Warrant Officer One Rady (Tim Guinee), praises Walden's character and performance, but was hit and rendered unconscious early on.
Serling then sees Walden's medic, Specialist Ilario (Matt Damon), who also praises Walden; by his account, Walden was the one who came up with the idea of the improvised incendiary. Staff Sergeant Monfriez (Lou Diamond Phillips), however, tells Serling that Walden was a coward and that he was responsible for destroying the tank. The members of the other downed crew mention that they heard the distinctive sound of an M16 being used in the firefight during the rescue around the other helicopter, but Walden's crew denies firing one during the rescue, as theirs was out of ammunition. When Serling visits Walden's crew chief, Sergeant Altameyer (Seth Gilliam), who is dying of cancer in a hospital. Altameyer manages to get some words out, further confusing Serling, before self-medicating himself into unconsciousness.
Under pressure from the White House and his commander, Brigadier General Hershberg (Michael Moriarty), to wrap things up quickly, Serling leaks the story to newspaper reporter Tony Gartner (Scott Glenn) to prevent another cover up. When Serling puts pressure on Monfriez during a car ride, Monfriez forces him to get out of the vehicle at gunpoint, then commits suicide by driving into an oncoming train. After finding an AWOL Ilario, Serling discovers that Monfriez wanted to escape under cover of darkness, which would have meant leaving Rady behind. Altameyer was ready to follow his lead and Ilario was wavering, but Walden refused to go along, resulting in an armed standoff with Monfriez. When an Iraqi infantryman appeared suddenly behind Monfriez, Walden fired at him. Mistakenly believing he was the target, Monfriez shot back and seriously wounded her. Walden, however, regained control of her men. The next morning, Walden stayed behind to cover their evacuation, firing the M16.
Monfriez deliberately lied to the rescuers, telling them that she was dead so she would be left behind. Altameyer, injured and unable to say anything but "no!", was ignored. Ilario remained silent, fearing a court-martial. A-10 airplanes then napalmed the wreckage. Serling presents his final report to Hershberg. Walden's young daughter receives the Medal of Honor in a White House ceremony.
Later, Serling tearfully tells the Boylars the truth about the manner of their son's death. In the last moments of the film, it is shown that Walden had transported Boylar's body away from the battlefield..