Don Santiago (Richard Angarola) is a vicious man who helps provoke an Indian massacre that will allow him to steal the Indians' land and claim it as his own. However, his son-in-law, Finley (Tom Laughlin), is an expert hand with both guns and swords and will not allow him to push around the peace-loving Indians or fellow settlers of the West.

After Billy Jack in sentenced to four years in prison for the "involuntary manslaughter" of the first film, the Freedom School expands and flourishes under the guidance of Jean Roberts. The utopian existence of the school is characterized by everything ranging from "yoga sports" to muckracking journalism. The diverse student population airs scathing political exposes on their privately owned television station. The narrow-minded townspeople have different ideas about their brand of liberalism. Billy Jack is released and things heat up for the school. Students are threatened and abused and the Native Americans in the neighboring village are taunted and mistreated. After Billy Jack undergoes a vision quest, the governor and the police plot to permanently put an end to their liberal shenanigans, leaving it up to Billy Jack to save the day.