In a Las Vegas pawn shop, a decrepit old man with one leg and hand shows up and pawns the shop owner Gupta with a statue wearing a medallion around its neck. The old man claims the statue is his good luck charm and warns Gupta to never touch the medallion it's wearing. Gupta cannot resist taking the medallion, so he removes it from the statue. Then a Leprechaun (Davis) suddenly springs to life from his statue prison, jumps on Gupta's back, and bites off a part of his ear, accusing him of being a greedy thief. Before he can cause him any more harm, Gupta reveals that he is wearing a medallion that he found on the Leprechaun's then petrified body. The Leprechaun grabs his pot of gold and runs from it and hides in the basement, where Gupta traps him inside. The Leprechaun notices one gold coin is missing.
Gupta then attempts to negotiate with the Leprechaun by allowing him to have half of the gold in exchange for the Leprechaun's freedom. Knowing he is being tricked, Leprechaun tosses the medallion aside. Gupta runs back upstairs to call for help, but is strangled to death by the Leprechaun via the phone cord.
Meanwhile, college student Scott McCoy has just arrived in Las Vegas, but while driving on the streets, he notices a woman with car trouble. He stops and gives her a ride to the Lucky Shamrock Casino, where she works. After she introduces herself as Tammy, Scott becomes immediately infatuated with her. While at the casino, Scott can't resist gambling, so he plays at the tables; but as a result, he loses all of his money at the roulette wheel, so he goes to the local shop to pawn his watch, where he uncovers Gupta's lifeless body on the floor. While calling for police, Scott unknowingly finds and takes Leprechaun’s coin and is given one wish. The computer on the counter next to him states in folklore that one wish grants the mortal anything he or she desires and that it remains permanent if kept in possession by that mortal. After hearing this, Scott sarcastically wishes that he had a winning streak.
After he leaves the shop (via the coin's magic transporting him back), Scott strikes it rich at the casino, after which he realizes his wish had come true. He is later robbed by Loretta and Fazio, casino employees and then attacked by the Leprechaun. He is able to throw Leprechaun out of the hotel window, but in the process is bitten by the creature, and some of Leprechaun's blood mixes with his. During his stay at the casino, Scott begins to undergo Leprechaun-like tendencies (such as quoting random limericks in an Irish accent). In the meantime, Loretta and Fazio, along with the Lucky Shamrock's owner Mitch, pass the coin around making wishes. Mitch wishes he could sleep with Tammy, Loretta wishes for her 20-year-old body, and Fazio wishes that he were the greatest magician in the world.
Leprechaun has survived the fall and one by one, he kills them off. When Mitch goes up to have sex with Tammy, Loretta steals the coin, and when it leaves the vicinity of the room, Tammy snaps out of the coin's spell. After she leaves the room, the Leprechaun enters, using magic to turn the television on. There is a very sexy woman who looks just like Tammy on the TV and starts speaking Mitch's name. She comes out of the television and starts kissing Mitch. Mitch hears the Leprechaun on the television and looks up. When he looks back at the woman, she is actually a robot, which proceeds to electrocute him.
Scott and Tammy spot the Leprechaun beside Mitch's body; he asks for the coin to be given back to him. Scott and Tammy subdue the Leprechaun and flee Mitch's room. Two casino workers walk in but are quickly killed by the Leprechaun. Outside the casino, Scott has begun to turn slowly into a Leprechaun himself from being bitten and must fight off his urges. When Tammy takes him to the nearest hospital, Scott is promptly taken to the examination room. The doctors notice irregularity in both his skin and blood, because of Scott's transformation. Scott, now a tall Leprechaun, stands up from his stretcher, subdues the medical officials observing him, and starts wandering around the hospital sensing that his "brother" is somewhere in the building. Tammy, worried over Scott's condition, ventures into the empty hospital hallways to find him. After she discovers a dead mortician, the Leprechaun captures her at the morgue and threatens to kill her if she doesn't tell him where Scott is. Before he can cause fatal harm to Tammy, Scott immediately appears and a showdown commences between the two.
As they each use magic to subdue one another, Leprechaun warns Scott that his Leprechaun-like tendencies cannot be fought so easily and that he would eventually be drawn to the gold's power. Scott then informs him that Fazio is the one who has the coin, so Leprechaun strolls away in the stretcher.
Meanwhile, back in the casino, Loretta wishes for her 20-year-old body back, and her wish comes true. When confronted by the Leprechaun in Fazio's dressing room, she tells him she doesn't have the coin anymore. The Leprechaun inflates her lips, chest, and rump. The inflated Loretta tries to escape via an open door, but becomes stuck when she tried to squeeze her newly inflated rump through. She continues to grow larger before finally exploding. Shortly after, Fazio wished to be the best magician in the world. During his magic performance, however, Leprechaun shows up, and attempts to saw him in half. Leprechaun possessed an actual chainsaw at the time, and Fazio knew that Leprechaun was going to kill him. Fazio attempts to make another wish on the coin that he would be at Caesar's Palace, but to no avail since the Leprechaun informs him that he already made one wish and that it's pointless because the coin only grants one wish. Everyone in the crowd starts insisting they want the saw trick to be done, not knowing that there would be that much blood and gore. The whole crowd, in disgust, sees Fazio being killed on stage; they all scream in fear.
Tammy and Scott arrive and warn the people to leave for their own safety. The audience immediately leaves, while Scott continues to battle with the Leprechaun. Still in Leprechaun form, Scott can't resist the pot of gold the Leprechaun leaves on the stage floor. Leprechaun promises Scott that if he takes the pot of gold, they'll share it, and Scott will be trapped as a Leprechaun for eternity. After hearing Tammy's pleas to not take it and that the Leprechaun's powers lie in his gold, Scott realizes that Tammy is right, and burns the gold, which in turn incinerates the Leprechaun. Scott morphs back to his regular self, and he and Tammy share a kiss and happily leave the casino together.