Larry Darrell (Bill Murray) leaves his fiancee, Isabel (Catherine Hicks), in Iowa and heads off with his best friend, Gray (James Keach), to Europe where they serve as ambulance drivers in World War I. He experiences the terrible destructiveness of battle and is profoundly affected by the death of a man who dies saving his life. Returning to the United States, Larry goes into a depression. He eventually tells Isabel: "I got a second chance at life. I am not going to waste it on a big house and a new car every year and a bunch of friends who want a big house and a new car every year."

Larry decides to spend some time by himself in Paris where Isabel's wealthy uncle Elliott (Denholm Elliot) has a luxurious home. His quest is to understand the meaning of life. He takes a job as a fish packer and reads a lot of books in his spare time. When Isabel arrives to take him back to America, she finds him to be a different man. He has no interest in a respectable job or a normal life. She leaves him in Paris, realizing that he'll never be able to give her the prosperous life she desires.

While working as a coal miner, Larry saves the life of another fellow who gives him a copy of the Upanishads and tells him that he should go to India. Larry does just that and meets a resourceful Indian who takes him to Tibet. There the American becomes the student of a lama and serves as a cook in the isolated monastery. During a long retreat by himself in the mountains, Larry comes close to enlightenment. He tells his lama: "It is easy to be a holy man on the top of a mountain." His teacher believes Larry is ready to return to the world. He advises him: "The path to salvation is narrow and as difficult to walk as a razor's edge."

Back in Paris, Larry has many opportunities to put into action the spiritual practices of equanimity, attention, and compassion. Meanwhile, Isabel has married Gray, but they have lost all of their money in the Stock Market crash of 1929. They have two children and are staying with Elliott. Also in Paris is Larry's childhood friend Sophie (Theresa Russell), who is busy numbing the pain she still feels after losing her husband and child in an automobile accident. Larry and Sophie become lovers, and he gently tries to pull her away from her addiction to alcohol and drugs. When Isabel learns that Larry intends to marry Sophie, she cruelly brings down her friend.

The Razor's Edge is based on a 1944 novel by W. Somerset Maugham which was made into a 1946 movie starring Tyrone Power and Anne Baxter. John Byrum directs this 1984 version where the questing theme is given ample emotional sweep by the music of Jack Nitzsche. Although Larry's spiritual quest is delivered simply and without fanfare, the most important dimension of his transformation is demonstrated when he returns to Paris. There his practice of equanimity is unique.

Buddhist teacher Sharon Salzberg has stated: "Equanimity is a spacious stillness of mind. A radiant calm that allows us to be present fully with all the different changing experiences that constitute our world and our lives." The film ends on a high and holy note when Larry compassionately bestows upon Elliott in his dying moments a grace that lends him dignity and makes him feel worthwhile. No wonder Larry can, in the last scene of the film, bound up a steep incline of stairs with the energy and delight of someone who isn't afraid of anything that lies ahead.