Driving a camel-powered truck across the desert, Max (Mel Gibson) is attacked by an fixed-wing aircraft pilot, who manages to steal both his belongings and his vehicle. Max walks and finally stumbles upon the only nearby human outpost in the wasteland that remains—the seedy community of Bartertown, founded and nominally run by the ruthless Aunty Entity (Tina Turner).
In Bartertown, electricity, vehicles, functioning technology—all almost unheard of in this post-apocalyptic world—are made possible by a crude methane refinery, fueled by pig faeces, using a weathered semi tractor as the electricity generator. The refinery is located under Bartertown and is operated by the smart, diminutive Master (Angelo Rossitto), who is harnessed to his enormously strong, but dim-witted bodyguard known as Blaster (Paul Larsson). Together, "Master Blaster" hold an uneasy power-truce with Entity for control of Bartertown; however, Master is beginning to exploit his position with energy "embargoes," challenging Auntie's leadership. She is furious with him but cannot challenge him publicly, as Master is the only one with the technical know-how to operate the machinery that powers Bartertown. The controlled chaos of Bartertown is maintained by a set of inflexible laws, including one that states that no deal can be broken, for any reason. The punishment for breaking this law is equally inflexible and invoked with the simple phrase, "bust a deal, face the wheel."
Entity recognizes Max as a resourceful (if disposable) fighter, and strikes a deal with him to provoke a duel with and kill Blaster in the "Thunderdome," a gladiatorial-esque arena where conflicts are resolved, turning what is arguably a political assassination into a lawful act. Max goes to the Underworld, where he befriends a convict who was imprisoned for killing a pig in order to feed his children, and thus nicknamed Pig Killer (Robert Grubb). The rules of matches in the Thunderdome, as chanted by onlookers crowding the arena, are simple and singular—"two men enter, one man leaves." After a stunningly long and difficult match, Max defeats Blaster, but refuses to kill him when he discovers that Blaster is a man with the mind of a child. An enraged Auntie has Blaster executed and invokes their single law since Max broke his deal with her. The wheel, which serves as a judge and jury, turns out to be a large, spinning metal disc (similar to a Wheel of Fortune) with an arrow pointing to one of several consequences. Possible consequences include Death, Hard Labour, Acquittal, Gulag, Aunty's Choice, Spin Again, Forfeit Goods, Underworld, Amputation, and Life Imprisonment. When spun for Max, it lands on "Gulag." He is cast out of Bartertown and exiled to the desert wastes.
The story radically shifts gears at this point. Some time later, Max, near death due to exposure to the hostile conditions, is saved by a group of children led by Savannah Nix (Helen Buday). The children, hardened to the desert environment, are survivors (or the children of survivors) of a nearby QANTAS Boeing 747 plane crash, and have formed a sort of tribal community in the sheltered desert Oasis in which they live. Clinging to their hopes of rescue, they keep their fading memories of the past civilization alive in the form of ritualistic spoken "tells" which hinge on the return of a messianic "Captain Walker" who will repair their shattered aircraft and return them to civilization. The "tell" explains that Flight Captain G.L. Walker at one point took most of the surviving adults to seek help, promising they would be back to rescue the rest, but never returned. Max's appearance and physical resemblance to Walker make the children believe that he has indeed returned to take them to "Tomorrow-morrow Land," or back to civilization as it once was. After nursing him back to health, they are shocked to hear Max's account of the dystopic state of the world and become angry at his insistence that they all remain living in the relative safety of the oasis, knowing that the only "civilization" within reach is Bartertown.
Some of the children decide to leave anyway, determined to find "Tomorrow-morrow land," the mythic place they believe their parents left them to find. Max goes after them.
The third act begins as Max catches up with them at the outskirts of Bartertown. They sneak in, intent on finding Master. Without Blaster to protect him, the dwarfish Master is little more than Auntie's slave. Max and the children free him (with the assistance of Pig Killer, who is also freed), but alert the guards, and a frenetic chase ensues, resulting in Bartertown's methane factory becoming damaged and causing explosions, ending at the hideout of the autogyro Captain (played by Bruce Spence). Max coerces him to help them escape in the Captain's Transavia PL-12 Airtruk, but there is not enough room for them all. Max stays behind, heroically clearing a path through the pursuing vehicles so the plane has enough runway to take off. Having earned her respect with his bravery, Aunty spares Max's life.
The story shifts to many years later, when the much older children are seen in the ruins of a destroyed Sydney (then "Tomorrow-Morrow Land"), lit up by thousands of fires and lights. Savannah, the leader of the children, recites a nightly "tell" of their journey.
This movie provides additional back story to the original Mad Max and Mad Max 2, showing a nuclear war following the energy crisis referenced in the beginning of Mad Max 2.
George Miller, director of the first two Mad Max movies, lost interest in the project after his friend and producer Byron Kennedy was tragically killed in a helicopter crash while location scouting. Miller later agreed to direct the action sequences, with George Ogilvie directing the rest of the film. There is a title card at the end that says, "For Byron."
Critical reaction to the film was generally positive, although reviewers were mixed regarding whether they considered the film the highest or lowest point of the Mad Max trilogy. Most of the criticism was focused on the children in the second half of the film, which many felt was too reminiscent of the Lost Boys from Peter Pan. On the other hand, critics praised the Thunderdome scene in particular; critic Roger Ebert called the Thunderdome "the first really original movie idea about how to stage a fight since we got the first karate movies" and praised the fight between Max and Blaster as "one of the great creative action scenes in the movies."
The music video for 2pac's 1996 hit, "California Love" was shot at the Thunderdome set and features Mad Max inspired vehicles and attire.