The series opens with Vic and Shane killing Terry Crowley, a new member of the Strike Team whom Aceveda convinced to help expose the team's corrupt antics. Vic gets away with the murder, but his life starts falling apart in the process. Shane has a nervous breakdown from the guilt (mostly due to Vic refusing to let Shane vent his feelings over it), Vic's son receives an autism diagnosis which requires expert treatment, and Vic himself frames an innocent man for trying to kill Lem after Lem accidentally fires on the man (which leads to Vic, Lem, and Ronnie having to rob a police vehicle to steal back the gun Vic planted on the dead man). But these problems pale in comparison to Vic learning that his mentor, Assistant Chief Gilroy, has become more corrupt: By manipulating department resources within specific parts of the city, Gilroy triggers a full-scale riot that ends in multiple deaths—and the lowering of property values within the city, which Gilroy counted on as part of a get-rich-quick real estate scheme.
Meanwhile, Dutch and Claudette investigate a serial killer who tries his best to destroy Dutch emotionally during a lengthy interrogation, and rookie patrol officer Julien Lowe struggles with his homosexuality (which Vic uses as leverage to silence Julien after he sees Vic stealing evidence from a crime scene).
Vic later brings down Gilroy and talks Shane down when he finally snaps over the guilt of Terry's death—but at the end of the season finale, Gilroy convinces Vic's wife of just how corrupt her husband has become, and she leaves in the middle of the night with the kids.
A one-off flashback episode, "Co-Pilot", separates the two arcs. This Continuity Snarl of an episode shows Vic and Shane forming the Strike Team, Aceveda's first encounter with Vic, and Dutch and Claudette becoming partners.
The season's second arc focuses on the growing tension between Claudette and Vic as the Strike Team plans the robbery of a money-laundering exchange (a "money train") run by the Armenian mob. Dutch and Sofer deal with professional problems due to a series of mistakes from the first half of the season. Julien, having "cured" himself of his homosexuality, marries a single mother, only to later be outed by an ex-lover. The Strike Team also takes on a new member—a black detective named Tavon—who knows nothing about the team's corrupt nature.
At the end of the season, Vic works out a "cease-fire" with Claudette after Vic and Tavon help catch the man who murdered Claudette's estranged ex-husband. That turns into a temporary truce when Claudette reveals she will replace Aceveda as the Barn's Captain, thanks to Aceveda winning the primary for an opening on the Los Angeles city council. The Strike Team carries out the Money Train heist with ease, but their moment of triumph vanishes in the face of a growing dread and fear: They have to keep their possession of the money a secret—and avoid the Armenians looking for those who stole it.
Things go further sideways when the team learns that marked bills were slipped into the Armenian mob's money by the Feds, which makes half of the heist's take worthless. When the Armenians send a ruthless hitman to find the men responsible for the robbery, Lem—suffering from ulcers and guilt after Vic forces him to cover up Shane assaulting Tavon and inadvertently removing him from the team—burns what is left of the money to stop the investigation. Shane refuses to go along with Vic and Ronnie's attempt to move on with Lem, which leads to Lem putting in for a transfer to a new precinct and Shane proclaiming he doesn't need Vic. After putting in for reassignment, Shane and Vic finally have it out with each other.
Meanwhile, a couple of gangsters sexually assault Aceveda at gunpoint—a consequence of one of Vic's attempts to cover up the Money Train Heist. Aceveda takes dramatic steps to get revenge on his attackers: He kills one and blackmails the other with threats against his family if he ever talks. Claudette and Dutch separate as Claudette prepares to take over as Captain, and both detectives fall apart as a result: Claudette becomes Drunk with Power, while Dutch ends up killing a cat after a rapist/murderer he spent the bulk of the season chasing after goads him into exploring how the criminal mind works. The pair ends up working together again, but soon after they get back together, Claudette reveals numerous instances of corruption within the city's public defender's office. Her whistleblowing helps overturn several dozen convictions—and all but kills her career on a political level.
Julien, now separated at work from Sofer, is torn between the forces of evil (Vic and Julien's new amoral partner, Tommy) and good (Danny) as he becomes more aggressive to compensate for his outing. When evidence implicates Tommy in the murder of his ex-wife and son, Vic wants Julien to help him kill the guy who did the actual murders so Tommy can claim deniability, while Danny wants to keep Julien from falling into Vic's world of corruption and nihilism. Julien refuses to kill the man (a decision which helps him gain Vic's respect), Tommy ends up killing himself, and Danny and Julien end up working together again.
Rawlings' arrival in Farmington coincides with the return of drug baron Antwon Mitchell, who wants to unite all of the city's gangs under his control. Mitchell brokers an alliance with Shane, which puts Shane at odds with Vic and Ronnie (who have reunited with Lem to neutralize Shane). The reformed Strike Team fears for the day Shane inevitably screws up, thinking he will rat out the trio in order to save himself. When Shane fails to warn Antwon about a raid on a major drug lab, Mitchell murders a young girl with Shane's police-issued firearm to frame Shane for her murder—and permanently bind Shane to his employment—as punishment. Vic later frees Shane from Mitchell's blackmail, but his actions start a series of events that end with Lem caught stealing drugs from a dealer by a police informant, giving IAD proof of the Strike Team's corruption. Mitchell later orders the murder of two patrol officers, then sells out his new allies—the El Salvadorian drug cartel—to receive immunity for ordering the killings. Rawlings manages to revoke Mitchell's immunity so she can arrest him for the murders, but does so at the cost of her job.
Slacker detective Steve Billings's disastrous tenure as Captain forces the upper brass to finally promote Claudette (who learns she has lupus after a massive fall down a flight of stairs) to the job. Rookie cop Tina Hanlon joins the precinct and attracts the attention of Dutch, who both feels attracted to her and wants to help mold her into a proper police officer.
The most important revelation of the season comes at the end: When Vic reaches his fifteenth year as a police officer in two months, the LAPD will force him to retire.
Julien joins the Strike Team alongside squeaky-clean new leader Kevin Hyatt, whom Claudette later fires when she realizes a corrupt Vic Mackey brings in the arrest numbers she needs to placate her bosses. Dutch's investigation of a house filled with dismembered body parts leads to the discovery of a major Mexican drug cartel moving into Los Angeles, which ties into Vic's discovery that Aceveda's new ally in his mayoral ambitions will play a big part in the stealth invasion.
Aceveda's new benefactor offers proof of Aceveda's sexual assault from earlier in the series to Vic, believing Vic will use it to save his job in exchange for staying quiet about the cartel. The gambit backfires when Vic and Aceveda put aside their rivalry to stop the cartel. At the end of the season, Vic skips out on a hearing that could save his job to help Aceveda obtain a box owned by the cartel; the box contains files that implicate prominent businessmen and political figures in Southern California as part of the cartel's invasion. With less than two months to go before his forced retirement, Vic sets his last major plan into motion.
Outside of Vic's story, Dutch befriends a woman whose teenage son pulls off a near-perfect murder. Fearing the sociopathic teen could one day become a serial killer, Dutch attempts to get the mother to help him arrest her child for the crime.
The season's main storyline comes to its climax as Vic drives Shane to kill himself and his family, then pulls off a Karma Houdini moment with the Feds. Because Vic can't secure an immunity deal for both himself and Ronnie, he gives Ronnie up to save himself — by confessing to every crime he and the Strike Team committed over the course of the show's events, starting with the murder of Terry Crowley.
Vic makes the arrests he needs to bring down the Cartel and ensure his immunity, but soon learns his victory is Pyrrhic. Claudette, who showed up halfway through Vic's confession, reads Shane's unfinished suicide note to Vic before ordering Ronnie's arrest; she also reveals that everyone knows about the crimes Vic and the Strike Team committed. Vic is unable to get to Ronnie in time to alert him to the truth. When Ronnie connects the dots on the charges and the immunity deal, he lets Vic have it with both barrels, in front of the other officers. Vic's ex-wife and children escape into Witness Protection to make sure he can never find any of them again. And the ICE agent Vic bamboozled gives him even worse news: he will be working at a desk, without carrying a weapon of any class, for the duration of a three-year "probation" period; only by completing that probation, without any deviations whatsoever, will his immunity from prosecution go into effect. Otherwise, it will be revoked.
At the end of the series, Vic Mackey no longer has a family, a team, a real career, the clout and authority he held while working the streets, or a chance of ever getting any of those things back. But at least he has a shot at a fresh start... if he can make it through those three years.