The film chronicles Al, a retired race car driver (played by Bruno Lawrence) who runs "Smash Palace", a carwrecking yard in rural Manawatū-Whanganui, with his depressed French wife and their seven-year-old daughter Georgie (Greer Robson).

Shot on location in the North Island Volcanic Plateau between February and May 1981, Smash Palace was the second feature film Donaldson directed.

Concerned that cultural cringe may result in an underwhelming box office performance, Donaldson decided to first release the film in Europe and the United States.

Eight years before the film's events, retired international racing driver Al Shaw returned home to take over his late father's car-wrecking yard, "Smash Palace", on the remote North Island Volcanic Plateau.

Al spends his days drinking with his policeman friend Ray Foley, whose vintage green Ford he is renovating, and mending cars with Tiny, an older man who is his long-term assistant.

Georgie reminds her father that tomorrow is her birthday; he makes amends by baking her a pie decorated with household candles.

After just a night, Georgie suddenly falls ill. Al drives into town and robs a pharmacy at gunpoint, where he is spotted by a patrolling police car.

When Ray enters the tool shed, Al traps him with a noose made of chicken wire he has tied to the end of the gun.

Surrounded by police, Al drives Ray slowly through the wrecking yard and onto the nearby railway tracks in front of an approaching train in an apparent murder-suicide attempt.

Roger Donaldson was inspired to write the film after reading a newspaper article of a 5-year-old boy being kidnapped by his police officer father in a custody dispute, which resulted in an armed standoff.

On a second attempt he was once again denied funding, until veteran film maker John O’Shea pointed out that Donaldson's earlier work Sleeping Dogs had been the reason the commission was founded.

It was successful in its home land, and received positive reviews in the United States; Veteran critic Pauline Kael described it as "amazingly accomplished".

Roger Ebert gave Smash Palace four out of four stars and dubbed it one of the best films of 1982, the year of its major theatrical release.

[11] He wrote that the film was "so emotionally wise and observant that we learn from it why people sometimes make the front pages with guns in their hands and try to explain that it's all because of love".