As they celebrate their high school graduation, four friends are involved in a hit-and-run accident when their car hits and apparently kills a pedestrian on an isolated roadway. They dispose of the body and vow to keep the incident a secret, a year later somebody starts sending them letters bearing the warning "I Know What You Did Last Summer".
Several teenagers in a small-town in Colorado concoct a July 4th prank based on a frightening legend that goes awry when their friend ends up accidentally killed; however, the teens agree to keep their involvement a secret from the authorities, who continue to search for the man who apparently killed their friend. A year later, with the July 4th celebration coming up again, the teenagers realize that they're being stalked by someone who clearly intends on keeping the horrible legend alive by killing them off.
Unfinished business with coed Julie James brings the murderer to the Bahamas to terrorize her and her friends, Karla, Tyrell and Will, during a vacation. Can Ray Bronson who survived a bloody attack alongside Julie two summers ago, get to the island in time to save everyone?