The drama tells the story of Richard Sharpe, an ambitious and hardened soldier from Yorkshire. The story follows the exploits of Sharpe and his band of chosen men through Spain after they survive an ambush by French cavalry.
In 1809, Sir Arthur Wellesley (David Troughton), the commander of the British army fighting the French in Portugal, is saved from three pursuing French cavalrymen by Sergeant Richard Sharpe (Sean Bean). Wellesley rewards Sharpe with a field promotion to lieutenant and command of the "chosen men", a handful of sharpshooters previously led by Rifleman Patrick Harper (Daragh O'Malley). The two men take an instant dislike to each other.
Wellesley has no money to pay his men; however, he has arranged for a loan from the Rothschild family. James Rothschild has set out from Vienna with a badly needed bank draft, but is overdue. Sharpe, his men, and a company under Major Dunnett (Julian Fellowes) are sent out to search for him. While Sharpe and his men are out scouting the terrain, the company is surprised and wiped out by enemy cavalry led by Colonel de L'Eclin (Malcolm Jamieson) and a mysterious man in black civilian clothes (Anthony Hyde), with only Perkins and a gravely wounded Captain Murray as survivors.
The band took refuged in a small cottage and Captain Murray succumbed to his wounds. Sharpe's men decided that they want to go back. When Sharpe tries to bully them into continuing with the dangerous mission, he and Harper end up fighting and are taken unawares by a band of Spanish guerrillas led by Comandante Teresa Moreno (Assumpta Serna) and Major Blas Vivar (Simón Andreu). They join forces for mutual protection since they are headed in the same general direction. Sharpe begins to bond with his men and also with Teresa. Along the way, they encounter the Parkers, a Methodist missionary couple and their niece, whom they take under their protection.
Major Hogan, Wellesley's chief of military intelligence, shows up and orders Sharpe to assist Vivar with his mission to rouse the people. The Spaniard has brought a thousand-year-old family heirloom with him - the Gonfalon of Santiago or "Banner of Blood". Legend has it that Santiago (Saint James) himself will appear to defend Spain when the flag is raised over the chapel in the town of Torrecastro. Sharpe, Teresa, Vivar and their men attack and defeat the French garrison. Vivar crosses swords with the man in black, who turns out to be his own brother, the Count of Matamoros, and kills him. He then raises the flag. At the end of the battle, Colonel de L'Eclin is about to shoot an unarmed Sharpe, but is shot and killed by Rifleman Perkins. Sharpe rewards the young Perkins by making him a "chosen man".
Sharpe reports back to Wellesley. When the general expresses his disappointment that Sharpe did not find Rothschild, Sharpe reveals that "Mrs. Parker" is the banker in disguise, to Wellesley's delight. Afterwards, Sharpe and Teresa make love, before she leaves to continue fighting the French.