The Three Amigos are Hollywood silent-film actors who are dumped by studio chief exec Harry Flugleman due to their excessive demands, and thrown off the film set.  Meanwhile one of their action movies is shown in a Mexican cinema where an audience member is desperately looking for a hero to rid their small town of a tyrannical bandito and his men.  She sends a shortened telegram to them, promising 100,000 pesos for a show against the infamous "El Guapo". How can they refuse?

If you watched the silent movie from the start of the movie, then that is basically how the movie ends - After they crash El Guapo's 40th birthday party to rescue Carmen, they are captured (but somehow survive) and after Ned defeats the German pilot in a quick-draw, they steal the plane and get back to the village - chased by El Guapo and his men.
  Without much time, they look for a plan and stumble on an idea from one of their old movies using what the town does best - knitting!
  They fashion hundreds of Amigo suits to kit-out every villager, and when the enemy reach the gates they open-fire from every doorway and behind every plant-pot.  Finally El Guapo is shot and defeated.
  About to leave, they are thrown a bag of pesos - but of course, in the Amigo way, their reward is that justice has been done.  Ned throws back the bag of money and they ride off into the distance.