The movie opens in New York City, in January 1955. Harry Angel (Rourke), a downtrodden private investigator, is contacted by an attorney named Herman Winesap (Dann Florek) and instructed to meet a client named Louis Cyphre (Robert De Niro) in a Harlemchurch. He tells Angel about a popular pre-war crooner named John Liebling, known as Johnny Favorite, who suffered severe neurological trauma resulting from injuries he received in World War II. Favorite's incapacitation disrupted a contract with Cyphre regarding unspecified collateral, and Cyphre believes that a private upstate hospital where Favorite was receiving radical psychiatric treatment for shell shock has falsified records, deliberately preventing the contract from being fulfilled. He hires Angel to discover the truth and locate Favorite's true whereabouts.

Angel travels to the hospital and discovers that the records showing Favorite's transfer were indeed falsified by a physician named Fowler (Michael Higgins). Discovering that Fowler is a morphine addict, Angel withholds his fix until Fowler admits he was paid $25,000 by a friend of Favorite's and an unknown woman and that one night, years ago, they put Favorite, whose damaged face was heavily bandaged, in a car to be taken south. Angel suspects that Fowler is still withholding information and locks him in his bedroom without a morphine fix, hoping to sweat him some more, but when he returns he finds the doctor murdered. Fearing he will be a suspect and anxious to quit the job, he meets Cyphre to apprise him of this literal dead-end. However, Cyphre pays him $5,000 to continue the search. Angel uses a former journalist lover to research Favorite's background. Although Johnny had a wealthy southern society fiancée named Margaret Krusemark (Charlotte Rampling), he also had a secret love named Evangeline Proudfoot in addition to being involved with a Coney Island gypsy fortune teller, Madame Zora. Learning that voodoo practitioner Madame Zora was actually the debutante Krusemark, Angel travels to New Orleans to find her.

In New Orleans, Margaret divulges little information to Harry, telling him that Johnny is dead. Harry then discovers that Evangeline is dead, but her 17-year-old daughter, Epiphany Proudfoot (Bonet), was conceived during her mother's relationship with Favorite. Epiphany is equally reluctant to speak, so Angel locates Toots Sweet (Brownie McGhee), a blues guitarist and former Favorite bandmate. Angel uses force to try to extract details of Favorite's last known whereabouts from Toots, who refers him back to Margaret. The following morning, Angel awakes to find the New Orleans police in his hotel room; they inform him that Toots was murdered the night before. Returning to Margaret's home, Angel later finds her murdered too, her heart removed with a ceremonial knife. Later, Angel is attacked by agents of Ethan Krusemark, a powerful Louisiana patriarch and Margaret's father, and told to leave town.

Angel returns home to find Epiphany on his doorstep, he invites her in and they talk about the relationship she had with her child's father. She puts some Blues music on the radio and they start to 'slow dance', eventually kissing. Angel and Epiphany have sex as Angel starts to have flashbacks of blood dripping from the ceiling and splashing around the room.

Epiphany reveals that Johnny Favorite was considered an extremely evil man who turned on everyone he knew. Angel suspects that Favorite is in hiding and is killing off his former friends to prevent his whereabouts being discovered.

Angel forces one of the men who attacked him to take him to Krusemark, who confronts Angel and reveals that Favorite was actually a powerful magician who sold his soul to Satan in exchange for stardom, but then sought to renege on the bargain. With the help of Toots and the Krusemarks, Favorite kidnapped a soldier on New Year's Eve, murdered him and ate his still-beating heart in order to steal his soul and assume his identity. Favorite planned to drop out of the contract and resurface as the soldier, but the boy was drafted due to the sudden outbreak of the war and Favorite's subsequent amnesia from his injuries ruined the plan.

Hoping to jog Johnny's memory, the Krusemarks later sneaked an unresposive Favorite out of the hospital and released him in Times Square. Angel has a panic attack and runs into the bathroom; he emerges to find Krusemark drowned in a cauldron of boiling gumbo. Fleeing to Margaret's home, he finds a sealed vase containing the clue to the soldier's identity Favorite gave her years ago. Angel breaks it open, revealing a set of dog tags with the name "ANGEL, HAROLD" stamped on them. Angel was, and has been, Johnny Favorite all along.

Louis Cyphre, a homophone for Lucifer, appears in Margaret's living room and tells Angel that despite his attempt to break the contract, he has known his true identity since the beginning. Angel refuses to believe him, insisting that he knows his own identity and will tell Winesap that Cyphre is trying to frame him for murders he himself has committed. Cyphre says 'if I had cloven hooves and a forked tail, would I have been more convincing?'

Cyphre then reveals that Winesap is also dead, and proceeds to unleash Angel's repressed memories: in a fugue state that Cyphre induced, Angel did indeed murder Fowler, Toots, and the Krusemarks. Finding himself alone, Angel then flees to his hotel where he finds the police in his bedroom. The body of Epiphany, wearing his dog tags, is in his bed, killed with a gunshot from his pistol. Angel finally accepts the truth of who he really is. The New Orleans police detective tells Angel that he'll burn for his murders, to which he replies "I know". He will be executed for his own daughter's murder, as well as the other killings, and Cyphre can at long last claim what is his: Favorite's immortal soul.

Over the end credits, there is a lengthy sequence of Angel inside an iron Otis elevator cage, which is interminably descending, presumably to hell. (Short clips of this sequence have been seen in Angel's dream sequences throughout the film.) As the screen fades to black, Cyphre can be heard whispering, "Harry" and "Johnny," announcing his dominion over both their (shared) souls.