Bo and Luke are running errands for an orphanage in Osage County. They never make it to their destination.
That's because Osage County Sheriff R.P. "Droopy" Cathcarte has used a tire-flattening device to disable the General Lee. The cousins are brought back to the county's prison camp, where the county's hard-nosed administrator, Col. Cassius Claybourne, reads them the riot act - speeding, reckless driving, eluding an officer ... the list of traffic offenses goes on. The Duke boys are sentenced to two years of hard labor!
Word spreads fast to Hazzard County, where Boss and Rosco are overjoyed that the Duke boys won't be causing any problems for them for the foreseeable future. Then the phone rings ... it's Claybourne, seeking Hogg's moonshine contracts in exchange for him dropping the charges against Bo and Luke. Hogg objects and hangs up.
Jesse and Daisy come to post bond, but Claybourne refuses. Just as they're leaving, the Dukes and the Osage prison camp's other inmates arrive back from work duty. An overjoyed Daisy and Luke kiss passionately; Capt. Slater, the lead guard assigned to watch the road gang, breaks up the kissin' cousins and then makes a fresh remark about Daisy. Luke - who served as Slater's superior officer in the Marine Corps - takes the surly captain up on an earlier offer to fight. Slater accepts, thinking he's about to teach a deviant prisoner a lesson, but Bo and Luke are able to overpower the guards. Claybourne breaks it up and sends everyone into their bunker.
Once inside, Charlie (one of the inmates) warns Bo and Luke that all the inmates are being held there on false charges, and frequently they have their sentences extended for one reason or another.
Back in Hazzard, Lulu is part of an effort to pressure Boss and Rosco to have Bo and Luke freed. When Lulu threatens to walk out on Boss, they finally relent.
Boss and Rosco drive to the Hazzard-Osage county line to turn over their moonshine contracts, but when they walk up to the General Lee to check on Bo and Luke, all they find are mannequins. Claybourne immediatley has Boss and Rosco arrested for trespassing, and they're brought back to the Osage prison camp.
Jesse and Daisy decide to go to Capitol City to obtain a court order to have Bo and Luke freed. Meanwhile, Boss and Rosco help Bo and Luke in their first plan to escape. At the work site, Boss and Rosco complain about their food rations, and drop their ball and chain on one of the guard's feet.
Bo and Luke escape in one of the guard's cars, but the car's engine breaks down, and it isn't long before they try to escape by crossing a small river. They manage to fool the guards and their Rotweilers, but they didn't fool Sheriff Droopy.
Back at Claybourne's office, Jesse presents the court order, which Claybourne promptly tears up when he learns of the Duke boys' escape. Instead, Claybourne - intending to make the Dukes examples of what happens when the inmates disrespect authority - sentences them to 24 hours in solitary confinement.
While the Dukes ponder their next move, Boss (who had been fed a "special diet" of three kidney beans throughout his stay) begs Claybourne for more substantial food. Claybourne had already anticipated this, and presents him with a series of high-calorie dishes - fried chicken, mashed potatoes, pizza, chocolate cake - in exchange for his real estate holdings and personal possessions. Boss is reluctant at first, but his gluttony gets the best of him. Rosco tries to get a bite, and even offers his meager savings account, but Slater restrains him.
On visiting day, Bo and Luke secretly plot to completely overtake the camp, and involve Daisy, Lulu and Jesse in the plans. Meanwhile, Boss gets ahold of escape tools that Lulu had tried to smuggle in, and both he and Rosco are put in solitary confinement (and visiting day abruptly ended).
That doesn't stop Jesse and the others from carrying out their plans.
Jesse and Lulu distract the guards at the impound yard, while Daisy gets the General Lee. Daisy quickly shows up at the camp, where she plays "easy" with the guards before restraining them in the fence (by handcuffing them together and putting the chain through the fence). Inside the dormitory, the inmates raise a ruckus, getting Slater's attention; he's quickly overpowered, and the Dukes get the keys to the transport truck. Bo and Luke quickly break the truck out of the yard, and the chase is on.
The chase finally ends when Droopy's car's tires get flattened (on the same stop-stick device used to flatten the General Lee's tires in the opening act). Slater (who is pursuing the General Lee) loses control of his car and rear ends Droopy's car.
It isn't long before Claybourne and his henchmen are taken into custody. In the close, we learn the state closes down the road prison and (never one to not let something go to waste) it soon becomes a camp for orphans.