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The story begins in summer with Sara. Sara is an elderly widow who lives alone in an apartment in Brighton Beach, Brooklyn, spending all day in front of her television watching a repetitive and insipid weight-loss infomercial. Her only other comfort is food, which has led to her being (in her own view) somewhat overweight. Harry only shows up at her apartment periodically to pawn her television in order to finance his heroin habit.

When she receives a phone call purporting to be from Malin & Block, a television studio, her life suddenly takes on new purpose. She believes she is to be invited as a guest on an infomercial she watches. She still has the red dress that she wore to Harry's bar mitzva (in the movie it was graduation), one of her proudest moments, and she becomes obsessed with her dream of wearing it on the show, for which she must lose weight to fit into the dress. She dyes her hair a vibrant red (to match the dress), and after initially failing her diet, she starts taking diet pills at the recommendation of one of her friends. She gets a prescription from an irresponsible doctor. Harry later notices from Sara's behavior (a newfound effervescence, as well as compulsive teeth grinding) while visiting her that they probably contain addictive stimulants (probably amphetamines) and begs her to stop taking them. Sara, in an impassioned monologue, explains to Harry the loneliness she's felt since the passing of her husband, and that the weight she has lost and the chance to be on television give her purpose and a reason to live. Harry promises afterwards to come and visit more often, with Marion. On the ride home, Harry is visibly upset, but soothes himself by injecting heroin.

Meanwhile, Harry and Tyrone start to earn their money as drug dealers. Excited for the future, Harry and Marion begin making plans to open a store to sell Marion's clothing designs. Tyrone views the sudden success as the key to escaping the harsh realities of the street.

As the fall arrives, Sara becomes gradually more dependent upon her pills, progressively increases her dosage and starts having hallucinations. When she takes her concerns to her doctor, he gives her a prescription for valium. Her hallucinations become increasingly severe and unsettling, frequently featuring herself as a guest on the infomercial (Tappy Tibbons' Hour of Power') or else her refrigerator moving violently, and she steadily slips into psychosis.

The others' dreams soon burst as well; Tyrone is arrested, while Brody, his friend and main drug source, is murdered by rival dealers. Harry and Marion spend the money they have saved so far to bail Tyrone out of jail. Over the next few months, it becomes far more difficult to score, as uncut heroin is no longer available from regular dealers. They struggle to buy enough each day to support their growing habits, gradually forgetting about their plans for the future. As heroin begins controlling their lives, Harry's relationship with Marion deteriorates; at its lowest point, Harry persuades Marion to have sex with her former therapist to earn money for a supply of drugs.

Tyrone receives information that a new batch of drugs will soon be available. The drugs are being sold by one of the few dealers with high-quality heroin left, as a 'gift' (though the price has doubled from its previous level) for the addicts during the Christmas season. At the meeting, in the stock room of a grocery store, Harry and Tyrone arrive to buy, but a violent confrontation drives away the dealer before they can get anything. Marion, meanwhile, is waiting at home, destroying her designs and the rest of the house in a fit of withdrawal-induced rage.

Sara, meanwhile, has still not received an invitation to be a contestant, and addiction to her diet pills has also been growing. She has been taking more and more pills, and her hallucinations have been intensifying accordingly. She takes her largest dose so far, and has an especially disturbing hallucination, in which the studio set of the infomercial she has been watching takes over her apartment, and exaggerated, cruel versions of the crew, audience, and even herself (as a guest on the show) mock her. Her refrigerator lurches forward and opens up as if to eat her. Sara, terror-stricken, runs from her apartment and heads for the studio in a desperate attempt to find out what is going on.

During the winter, Harry and Tyrone try to drive to Florida, where they believe heroin will be more easily available. Harry realizes that the arm he injects heroin into is becoming severely infected. Ignoring the problem, he injects directly into the wound. His condition worsens rapidly, and Tyrone insists that they find a hospital. After Harry checks in, the doctor realizes from the nature of his infection that he is a drug addict. The doctor reports Harry and Tyrone to the police without providing treatment, and the two are arrested.

Meanwhile, Marion pays a visit to a pimp, Big Tim (Keith David), who, Harry told her before they left, has heroin but is not selling it, instead giving it away for sexual favors. After the encounter with Big Tim, he gives Marion a modest supply of heroin, and informs her she can get more at a party he's throwing next Sunday. He doesn't specify what exactly she will have to do to earn it, but she knows it will be sexual in nature. At first, Marion declines the offer, and leaves Big Tim's place feeling physically sick, presumably from a combination of withdrawal and disgust at her degradation. Big Tim, no stranger to addicts, says to her, "See you on Sunday." When her initial stock of drugs runs out, she indeed returns for the party.

Sara is hospitalized, after a dramatic incident at the television station. While in the hospital, Sara is restrained, drugged and force-fed by the indifferent medical staff. One doctor tries to communicate with her, to find out what she has taken in order to help, but by this point she is quite unable to make any coherent reply.

In jail, Harry uses his one phone call to finally contact Marion again. The two share a heartbreaking moment of connection.

The story climaxes as the lives and dreams of the four chief protagonists finally and decisively collapse. Harry's arm is amputated in hospital after his infection, worsened by the refusal of treatment at the hospital and in jail, leads to gangrene; Sara receives painful and ineffective electroconvulsive therapy and almost completely withdraws from reality; Tyrone stays in jail, where his withdrawal and labor are both punishing, and is subject to mocking at the hands of racist jail officers; and Marion attends Big Tim's party, where she and another woman perform sex acts on a table surrounded by drunken and aggressive men.

Following these scenes, the film concludes with a last look at the four protagonists. Harry wakes up in the hospital, asking for Marion. The nurse by his side assures him she will be sent for, but Harry realizes that any hope of getting her back is now gone. Sara, emaciated and catatonic, is now in a mental hospital. Some of her friends from the apartment building where she used to live visit her, and are aghast to the point of tears by the state she has been reduced to. Tyrone is shown lying down for his first night in jail, obviously in a great deal of pain from withdrawal, dreaming of his long-gone mother. Marion is seen back at the apartment after the party, hugging a substantial bag of heroin with a haunted smile. The last sequence of the movie shows Sara's last dream: her long-awaited infomercial show appearance. She wins a prize: her son Harry, now a successful young man. Mother and son hug and say how much they love one another through the cheers of the crowd and the glowing stage lights, but the scene is underscored by bleak reality, and the ending is ultimately a depressing one for all involved.