As his mother is dying of a terminal disease, David (Benny Moshe) runs away from an abusive father and lives with other homeless children in a series of large concrete construction pipes. A few years later, David, who now goes by Tsotsi (Presley Chweneyagae), is the leader of a gang that includes his friends Butcher (Zenzo Ngqobe), Aap (Kenneth Nkosi), and Boston (Mothusi Magano).
After getting involved in a murder committed by Butcher during a mugging, Tsotsi and Boston get into a fight that leaves Boston badly injured. Tsotsi later shoots Pumla (Nambitha Mpumlwana), a young woman, while stealing her car, only to discover a three-month-old in the back seat. Tsotsi hastily strips the car of its valuables and takes the baby back to his shack. Pumla survives the attack and works with a police artist to create a composite sketch of Tsotsi's face, which is then run in the newspapers.
Realizing that he cannot properly care for the baby on his own, Tsotsi spots Miriam (Terry Pheto) with a young child strapped to her back, collecting water from a public tap. He follows her to her shack and forces her at gunpoint to feed the kidnapped child. Meanwhile, rich gang leader Fela (Zola) begins attempting to recruit Aap, Boston, and Butcher to work for him. When Tsotsi takes the child to Miriam a second time, she asks him to leave the boy with her so that she can care for him on Tsotsi's behalf, and Tsotsi agrees.
Tsotsi decides to take care of the injured Boston, and has Aap and Butcher take Boston to his shack. Boston, who is called Teacher Boy by his friends, explains that he never took the teachers' examination. Tsotsi tells him that the gang will raise the money so that Boston can take the exam, which means that they will have to commit another robbery.
Tsotsi and Aap go to Pumla's house. When Pumla's husband John (Rapulana Seiphemo) returns from the hospital, they follow him into the house and tie him up. Aap is assigned to watch John while Butcher ransacks the bedroom and Tsotsi collects items from the baby's room.
When Aap goes to raid the fridge, John activates the alarm. In a panic, Butcher attempts to kill John with John's pistol that he found. Tsotsi shoots and kills Butcher with his pistol. He and Aap escape in John's car moments before the security company arrives.
Traumatized by Tsotsi's killing of Butcher and fearing that Tsotsi will one day harm him too, Aap decides to leave the gang and quit as Tsotsi's friend. When Tsotsi goes back to Miriam's house, she reveals that she knows where he got the baby, and begs him to return the child to his parents.
Tsotsi sets off to return the baby. He reaches John's house and tells John over the intercom that he will leave the child outside the gate. Meanwhile, an officer stationed at the house alerts Captain Smit (Ian Roberts), who rushes to the scene, arriving just as Tsotsi is about to walk away.
The police train their guns on Tsotsi, ordering him to return the baby. However, John urges them to lower their weapons so that he can retrieve the baby himself. As Tsotsi holds the baby in his arms, John convinces him to give up the baby. Tsotsi emotionally hands the baby to John, then is told to put up his hands and turns himself in as the film ends.
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