The supporting cast includes Will Patton, Howard Duff, George Dzundza, Jason Bernard and Fred Thompson. Somali-American model Iman also appears. In addition to the Orion Pictures Corporation studio, filming locations were Annapolis, Maryland, Arlington, Virginia, Baltimore, Maryland, and Washington, DC, as well as Auckland, New Zealand.
The story is set amid the political backdrop of a very successful Defense Secretary, David Brice (Gene Hackman) as he attempts to cancel a white elephant "Phantom Sub" project that has extremely powerful political backing. The primary reason the project has lasted as long as it has are continuing stories that the Soviets are working on a similar project. Brice considers the stories to be fabrications made solely to keep the project alive, along with the pork barrel money it creates.
In order to shore up his position on the "Phantom Sub" issue, Brice wants to hire a man to act as his liaison between the CIA and Secretary of Defense's office. But the real purpose of the position is an attempt to gather information about whether or not the Soviets really are working on such a project. Brice's closest aide, Scott Pritchard (Bill Patton), is a friend from long ago of Farrell's, and Brice decides that his recently attained status as a military hero would certainly help. The three men meet and Farrell accepts this position.
Meanwhile the affair between Brice and Atwell continues, and Farrell becomes increasingly upset by this. When Farrell learns that Atwell's "other man" is Brice he comments, "I work for him!", to which she sardonically replies, "Then that makes two of us." Brice also soon learns of Atwell's affair with another man, although he remains ignorant of his identity, and he accidentally murders Atwell by shoving her off a balcony in a fit of rage while trying to learn the name of her new lover. Ready to turn himself in, Brice is persuaded by Pritchard instead to cover up everything... and blame it on someone else.
In an attempt to deflect attention from himself, Brice claims her lover was in fact a KGB "mole" (a sleeper agent) code-named "Yuri", thereby focusing all attention on an attempt to capture that spy. The CIA had created "Yuri" for cheap political points and are quite amused when they learn the Pentagon has "fallen for it". Knowing that "Yuri" doesn't exist, Director Marshall (Thompson) dismisses the possibility of Pritchard having an affair with Atwell, revealing that Pritchard is a closeted homosexual. Unknown to them, Brice is cleverly using their fiction to serve his own ends.
Brice appoints Farrell to lead the investigation to find her lover. Farrell is thus placed in the position of attempting to find evidence that could implicate himself. The only major piece of forensic evidence in the case is a badly smudged photograph of Farrell that was recovered from Atwell's house, which requires lengthy computerized digital processing to become useful. While the processing takes place, Farrell sets about re-directing attention back onto Brice. He does this by searching government printouts for evidence that Brice gave Atwell a gift that was a government-registered present from another country, thereby linking Atwell and Brice.
Farrell asks the systems analyst, who is an old friend, to slow down the processing, and confides in him. Pritchard, sensing foul play, kills the analyst and also has Atwell's roommate harassed by the INS and covert security officers.
The climax is a race between two pieces of evidence, the processing of the picture implicating Farrell, and a printout of the presents registration implicating Brice. Farrell obtains the printout and presents the evidence to Brice just as his likeness becomes recognizable on the computer screens. Brice, unaware of this last fact, shifts the blame to Pritchard, arguing that Pritchard was "jealous" of Atwell (thus implying that Pritchard was in love with Brice). Pritchard, faced with doom, commits suicide with a pistol shot to his head.
The movie ends with a surprising plot twist. After Brice's unseen arrest, Farrell is seen mourning at Atwell's grave when two apparent "G-men" arrive and take him away to his apartment for questioning. One of the interrogators is, oddly, Farrell's landlord. After a few moments he starts talking to Farrell in Russian and Farrell responds haltingly in Russian. Farrell is, in fact, the real "Yuri", and his landlord is his KGB supervisor and handler. Yuri/Farrell was planted in the U.S. as a young man, attended college here, and won an officer's commission as a US Naval officer. There, he became the "mole" in the Department of Defense.
As it turns out, none of the events during the film was entirely accidental. The KGB was aware of the ongoing affair between Brice and Atwell. In response, they had ordered Farrell to seduce Atwell, hoping to gather intelligence from the Secretary of Defense's mistress.
When Farrell's KGB boss announces that the case has become too close for comfort, Farrell indignantly refuses to return to the U.S.S.R. or to have anything further to do with the KGB. As Farrell leaves, his handler makes no attempt to restrain him. Farrell's handler tells his men: "He'll be back. Where else does he have to go?"
In dismissing the suggestion that Scott Pritchard was the one having the affair with Susan Atwell, CIA Director Marshall states that Pritchard is a homosexual, to which someone says, “I’ll be damned” and Marshall replies, “So is he, if you believe in the Bible.” This statement was later edited so that Marshall says, “So is he, if you believe in the Old Testament.”