Although he is kept as a captive, Algren is relatively free to explore the village and interact with its inhabitants. He meets with the leader of the samurai rebellion, Katsumoto Moritsugu, who wishes to have civilized conversations with him for the purpose of mutual understanding. Algren grows to respect the simple and disciplined lifestyle of the samurai and their families, and as time passes, he integrates more fully with their society. From Katsumoto, he learns that the rebellion opposes the Westernization of Japan, and that he believes the samurai are acting in the best interest of Japan. Algren stays with Katsumoto's sister Taka and her family; she initially dislikes him, but after Algren learns that he had killed her husband in combat, he apologizes to her, and the two grow closer. His stay in the village allows him to overcome his alcoholism and come to terms with the horrors of his past.
Katsumoto travels to Tokyo to meet with his former student, the Emperor, and Algren accompanies him. Algren learns that the Imperial Army of Japan has become much better trained and armed over the wintertime. Katsumoto realizes that the Emperor's influence in the government has been overshadowed by that of his advisers, including Omura, who support Westernization and intend to use the strengthened army to crush the samurai. In a council meeting, Katsumoto is arrested for carrying a sword. Rather than fulfill Omura's request to lead the Imperial Army against the rebellion, Algren organizes the samurai to free Katsumoto.
Back at the village, Algren and the samurai prepare for the army's coming assault. On the day of the battle, Taka dresses Algren in the armor worn by her husband, and the two share a kiss. On the battlefield, the samurai lure the first regiment of the Imperial Army into favorable terrain and engage the soldiers at close range, resulting in a bloody brawl that leaves many dead on both sides before the remaining soldiers retreat. Knowing that they cannot withstand another assault, Katsumoto orders a horseback charge that breaks through the Army's defensive lines and is only stopped by last-minute Gatling gun fire. During the charge, Algren spots Bagley firing on Katsumoto, and kills him. The Gatling fire kills all the remaining samurai and grievously injures Algren, who nevertheless helps Katsumoto achieve an honorable death by performing seppuku. The Imperial Army collectively kneels and bows in a show of respect for the fallen samurai.
Days later, as negotiations over the trade agreement conclude, an injured Algren interrupts the proceedings and presents Katsumoto's sword to the Emperor, stating that Katsumoto would have wanted him to have it and to remember the cause for which he and his ancestors had died. The Emperor realizes that while Japan must modernize, it must also grow strong on its own terms and never forget its own history and culture. He rejects the trade agreement and confiscates the assets of Omura's family to give back to the people. As the film closes, Algren returns to the village to live with Taka and the others.