It is the old west and the Dillon clan are making life miserable for a small Western town. Sweetheart Nell (Christine McIntyre) and her dashing but dimwitted boyfriend Elmer (Jock Mahoney) rushes off to find help. Meanwhile, cavalrymen the Stooges are making life miserable for superior, Sergeant Mullins (Dick Wessel). Mullins tries to whip the boys into shape, but his plan backfire and has a run-in with his superior, Captain Daley (Emil Sitka). Daley informs Mullins about the Dillion clan's evildoings, and needs some men to run them out of town. Mullins does not miss a beat, and volunteers the unsuspecting Stooges.
The trio are made up to look like tough desperadoes, and happen upon the town saloon. They take jobs as waiters and do their best to spy on Dillion (Kenneth MacDonald) and his hombres without being discovered (complete with fake mustaches) However, Moe's mustache flies off his face, right onto Dillion's nose. The gang tie up Moe and Larry, and manage to corner Shemp into a safe.
As this is going on, Elmer is stumbling his way to the door of United States Cavalry, who are temporarily unavailable, it being pay day and all ("Boys will be boys," shrugs Cavalry colonel Vernon Dent). Disillusioned, Elmer returns to rescue his Nell, who is busy knocking every cowboy who enters her room out cold. Eventually, the Stooges emerge victorious.
Punchy Cowpunchers is one of the few entries in the Stooge canon to feature an extensive musical soundtrack.