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The film begins with the capture of Solomon Vandy (Djimon Hounsou), a fisherman, by the Revolutionary United Front (RUF) rebels. Separated from his family, Solomon is enslaved to work in the diamond fields under the command of Captain Poison (David Harewood). The RUF use the diamonds to fund their war effort often trading them directly for arms. While working in the RUF diamond fields as a forced labourer, Solomon finds a large diamond of rare pink colouring. Moments before government troops launch an attack, Captain Poison sees Solomon hiding the diamond. Captain Poison is injured in the attack before he can get the stone, and both he and Solomon are taken to prison.

Danny Archer (Leonardo DiCaprio), a white mercenary from Rhodesia (Zimbabwe), trades arms for diamonds with an RUF commander. He was imprisoned when smuggling the diamonds into neighbouring Liberia. His smuggling-beneficary was a South African mercenary named Colonel Coetzee (Arnold Vosloo), who is in turn employed by South African diamond company executive Van De Kaap (Marius Weyers). Coetzee is Archer's former commander in 32 Battalion, the most decorated unit of the South African Border War made up of Angolan soldiers and white South African officers. Archer is desperate for a way to repay Colonel Coetzee for the diamonds he lost when he was thrown in jail. While in prison, he overhears Captain Poison ranting to Solomon about the discovery of the large diamond and makes plans to hunt down the stone. He arranges for Solomon's release from prison and offers to help him find his family in exchange for the diamond.

Archer meets Maddy Bowen (Jennifer Connelly), an American journalist covering the war and investigating the illegal diamond trade. Archer convinces Bowen to help him and Solomon find Solomon's family. They find his family in a UN refugee camp in Guinea inhabited by over a million refugees. But Solomon's son Dia has been kidnapped by the RUF and brainwashed into becoming a child soldier. Archer says he will help Solomon get his son back if he helps him find the diamond.

Archer and Solomon pretend to be journalists to accompany a convoy of journalists along with Bowen. The convoy is attacked and Archer, Solomon and Bowen escape and continue upon a perilous journey to claim the stone from its hiding place. After a demanding struggle, the men find the mining camp, again under RUF control, where Solomon discovered the large diamond. Here, Solomon is painfully reunited with his son Dia, who refuses to acknowledge him due to having been brainwashed by the rebels. A South African mercenary force under Colonel Coetzee, also after the diamond, dispatches the RUF rebels in a massive air raid; and, through a deal with Archer, forces Solomon into retrieving the stone. In a desperate battle, Archer kills Coetzee after realising that they would have killed both Archer and Solomon upon locating the diamond. At this point Dia holds Archer and Solomon at gunpoint, but Solomon manages to convince him to side with them.

Archer realizes he has been shot, but he doesn't say anything and phones his pilot, who demands that Danny dump Solomon and Dia. Up on the top of the mountain (they are currently in the valley), there is an airstrip, and the group begins to make their way. It is a slow and painful process, and along the way Archer demands the diamond from Solomon. They begin to climb the mountain, whereupon Archer collapses from lack of blood, and Solomon carries him up the mountain. Finally unable to continue due to a gunshot wound he sustained in the fight, Archer gives Solomon the diamond and urges him to leave Sierra Leone to sell the diamond in London. Before succumbing to his wound, he makes a final phone call to Bowen asking her to help Solomon as a last favour. With the help of Bowen, Solomon trades the diamond for a large sum of money and the reunification of his family: as Solomon's wife and children deplane from a Lear Jet at a London airport, he and de Kaap make the exchange. Bowen, who secretly photographs the deal, later publishes a magazine piece exposing the trade in "conflict" or "blood" diamonds. The film ends with Solomon addressing a conference on blood diamonds in Kimberley, South Africa, describing his experiences. This refers to a real meeting that took place in Kimberley in 2000 and led to the Kimberley Process Certification Scheme, which seeks to certify the origin of diamonds in order to curb the trade in conflict diamonds.