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Pepe le Moko, the most notorious thief in Algiers, has eluded prison for many years because the police cannot capture him in his habitat, the labyrinthine Casbah sector of the city.  Janvier, a policeman who reports to the French government in Paris, is determined to capture Pepe and appease his superiors, using whatever means possible.  Inspector Slimane, who regularly sees Pepe in the Casbah, scoffs at Janvier's efforts, knowing that Pepe's arrest can only be accomplished by intelligence and finesse.

Janvier attempts a raid on the Casbah, based on information supplied by Regis, a thief who is jealous of Pepe.  Regis then goes to Ines, a woman in love with Pepe, to "warn" him that the police are coming.  Pepe suspects that Regis has been informing the police, but does nothing.  When the police arrive at Pepe's friend Grandpere's house, shooting starts and Pepe is slightly wounded, but escapes.  During the melee, Gaby, a beautiful French tourist, is helped by Slimane, who takes her to a house, where they meet Pepe.  Though Slimane likes and admires Pepe, he wants to capture him and tells Gaby that the exact date of Pepe's capture is written on his office wall.

The next day, as Gaby and her friend Aicha prepare to meet Gaby's rich fiancé Giraux and Aicha's rich husband Bertier, an unhappy Gaby thinks of Pepe.  At the same time, Pepe encounters Slimane in the Casbah and Slimane teases Pepe that he is as interested in Gaby's eyes and mouth as her expensive jewels.  Meanwhile, Regis tells the policeman Louvain that he has a plan to capture Pepe, by using Pepe's loyal young friend Pierrot as bait.  Regis sends a letter to Pierrot, supposedly from the young man's mother, which tells him that she is lying ill in Algiers.

Distraught when Regis says that the handwriting proves definitely that the letter is genuine, Pierrot determines to go to his mother, and is accompanied on his journey outside the Casbah by Regis.  Some hours later, after Pepe is told by Tania, a girl who loves Pierrot, about Regis and Pierrot's conversation, Pepe has Regis brought to him.  While the nervous Regis worries about his fate, Pepe again meets Gaby and she agrees to see him the next day, realizing that they love each other.  When a wounded Pierrot comes back to the Casbah and tells Pepe exactly what has happened, Pepe takes him to Regis.  Pierrot collapses as he is about to shoot Regis, who is then killed by Carlos, Pepe's underling.

The next day, Pepe is almost mad with grief.  When Slimane tells him about Pierrot's funeral, which Pepe could not attend because it was held outside the Casbah, Pepe rushes toward the main part of the city.  He is stopped by Ines, however, who lies that Gaby is waiting for him at his house.  Once at home, Pepe discovers the lie, but is grateful to Ines for saving him from capture.  When Gaby does show up, Pepe becomes even more frustrated that he cannot leave the Casbah.  She wants him to meet her outside the Casbah, but agrees to come back the next day.

Meanwhile, Slimane talks to Giraux and advises him to take Gaby away before she becomes too involved with Pepe.  As Slimane's plan unfolds, Gaby is told by Giraux that Pepe has been killed; at the same time, Pepe learns what has happened by the traitor L'Arbi, who lets him know that Gaby and Giraux are leaving by steamship that afternoon, even though Pepe is supposed to think that she will still be at the hotel.  Now obsessed, Pepe refuses to listen to Ines' pleas and leaves the Casbah.  As Pepe buys a steamship ticket, Ines informs Slimane that Pepe will be going directly to the dock.

On the boat, just as Pepe sees Gaby in the salon, Slimane and his men take him under arrest.  On the dock, when Pepe runs toward the ship trying to call Gaby, who has not seen him, one of Slimane's men shoots him.  As Slimane holds the dying Pepe, he apologizes because his man thought Pepe was trying to escape, to which Pepe replies, "And so I have, my friend."