The story is set in motion with the brutal murders of high school students Casey Becker (Drew Barrymore) and her boyfriend Steve (Kevin Patrick Walls), classmates of Sidney Prescott (Neve Campbell). The timing of the tragedy is hard on Sidney, who is attempting to cope with the anniversary of her mother's rape and murder. The following night she is contacted by the same person who killed Casey and Steve, a mysterious man dressed in a ghostly costume. The killer taunts Sidney over the phone and then attacks her in her home. Reacting to circumstantial evidence, Sidney accuses her boyfriend Billy Loomis (Skeet Ulrich) of being the attacker. Because her father is away on business, she spends the following night with her best friend Tatum (Rose McGowan) and her brother Dwight "Dewey" Riley (David Arquette), a deputy on the police force. While there, she receives another taunting phone call from her attacker, which seems to clear Billy, who is still in jail. Suspicion falls on Sidney's father, who turns out to be missing.

Sidney is forced to deal with the scandalization of her attack by tabloid television newswoman Gale Weathers (Courteney Cox). Gale is responsible for a book accusing Sidney's mother of having an affair with her convicted killer, Cotton Weary (Liev Schreiber), leading to bitter mistrust between Gale and Sidney.

When word gets out that the killer is still loose, school is canceled as a precautionary measure, leaving the building abandoned. Despite the closing, the principal (Henry Winkler) is killed while in school. Unaware of the principal's fate, Tatum's boyfriend Stu Macher (Matthew Lillard) throws a party; among the guests are Billy and Sidney, who reconcile through sexual intercourse, and film buff Randy Meeks (Jamie Kennedy), who explains to the other party-goers the genre conventions a movie character is required to follow in order to survive a horror film. Meanwhile, Tatum goes into the garage to find beer, and gets killed by the masked killer.

Gale, sensing the potential for a scoop, crashes the party and hides a video camera inside the house. As Dewey and Gale investigate the mysterious appearance of Mr. Prescott's car, the party-goers receive word of the principal's death and most of them head to the school. The killer starts to stalk those who remain behind, murdering Gale's cameraman Kenny (W. Earl Brown) and wounding Billy, Dewey, and Sidney. Gale is also wounded, in a car accident.

Sidney encounters Randy and Stu, who both accuse each other of being the killer; not knowing which one to trust, Sidney locks them both out of the house.

Billy falls down the stairs, seriously injured, and lets Randy into the house. Randy claims that Stu has gone mad, but Billy replies that "We all go a little mad sometimes" (quoting Norman Bates) and shoots Randy. Billy and Stu reveal that they are both the killer, and have been using a voice-changing device to make them seem like just one person over the phone. They also reveal that they had murdered Sidney's mother the previous year and then framed Cotton Weary for the crimes; similarly, they plan to frame Sidney's father for their current murder spree, by planting evidence on his body. They stab each other to create the illusion that they have been attacked by Sidney's father, but Billy cuts too deeply, and Stu starts to die.

Gale attempts to rescue Sidney and her father, but she is easily subdued when she fails to disengage the safety on her gun. However, Gale's interference does serve as a distraction which allows Sidney to escape. She returns to taunt and attack Billy and Stu; in the struggle that follows, she kills Stu and seriously injures Billy, before Gale saves Sidney's life by shooting him. Presumably dead, Billy springs to life one more time (a horror convention which Randy had predicted), but Sidney kills him with a bullet to the head.

In the epilogue, Dewey is carried away on a stretcher, wounded but alive, and Gale makes an impromptu news report on the events of the previous night as the authorities arrive.