The prologue depicts a young Indiana Jones in 1912 as a Boy Scout settling in Utah, battling grave robbers for the Cross of Coronado, an ornamental cross belonging to Francisco Vázquez de Coronado. As the foiled grave robbers give chase, Indiana hides in a circus train, in the process using a whip, scarring his chin, and gaining a fear of snakes. Although he rescues the cross, the robbers tell the Sheriff that Indiana was the thief, and he is forced to return it, while his oblivious father, Henry Jones, Sr., is working on his research into the Holy Grail, keeping meticulous notes in a diary. The leader of the hired robbers, dressed very similarly to the future Indiana and impressed by the young Indy's tenacity, gives him his fedora and some encouraging words. In 1938, Indiana recovers the cross from the robbers' ship in the coast of Portugal, and donates it to Marcus Brody's museum.

Indiana is introduced to the wealthy Walter Donovan, who informs him that his estranged father has vanished while searching for the Holy Grail, using an incomplete stone tablet as his guide. Indy receives a package which turns out to be his father's Grail diary, containing all his life's research on the Grail. Understanding that his father would not have sent the diary unless he was in trouble, Indiana and Marcus travel to Venice, where they meet Henry's colleague Dr. Elsa Schneider. Indiana and Elsa discover catacombs beneath the library where Henry was last seen, and discover the tomb of Sir Richard, a knight of the First Crusade, with a complete version of the stone tablet that Henry used. They flee when the catacombs are set aflame by The Brotherhood of the Cruciform Sword, a secret society. They are pursued and escape on a speedboat, and a chase through Venice ensues in which they capture the cult's leader, Kazim. After Indiana convinces him of their intentions, Kazim explains The Brotherhood are protecting the Grail from those with evil intentions, and that Henry was abducted to a castle on the Austrian-German border.

Indiana and Elsa infiltrate the castle. Indiana finds his father, but learns that Elsa and Donovan are working with the Nazis to seek the grail, hoping that Indiana would discover its location. The Nazis capture Marcus, who had traveled to Iskenderun, Hatay with the map to the Grail's location. The Joneses are able to escape and recover the diary from Elsa at a Nazi rally in Berlin, where they proceed to try and escape from Germany to meet with Sallah in Hatay, where they learn of Marcus' abduction and that the Nazis are already moving to the Grail's location. With the help of The Brotherhood, the Joneses ambush the convoy and rescue Marcus, though Donovan and Elsa continue on to the Canyon of the Crescent Moon, where the Grail resides.

Indy, his father, Marcus, and Sallah catch up and find that the Nazis are unable to pass through traps set before the Grail. After the four are discovered, Donovan shoots and mortally wounds Henry, forcing Indiana to circumvent the traps using the information in his father's diary, with Donovan and Elsa shortly following him. Indiana succeeds and finds himself in a room with the last Knight of the First Crusade, kept alive with the power of the Grail, which has been hidden among several other cups. Elsa selects a gilded cup encrusted in jewels for Donovan, knowing it to be fake; when Donovan drinks from it, he ages rapidly before decaying and turning into dust. Indiana, recognizing that the Grail would be that of a humble carpenter instead of a wealthy king, selects the correct vessel, and quickly takes it to his father with the holy water, which heals his wounds instantly when the older Jones drinks from it. As they prepare to leave, the Knight warns them to not take the Grail out of the temple, but Elsa does so, causing the temple to collapse. Elsa falls into an abyss during a greedy attempt to recover the Grail. Indiana nearly suffers the same fate until his father tells him to let it go, and he is pulled to safety. The Jonses, Marcus, and Sallah narrowly escape the collapsing temple. While they prepare the horses to ride off, Sallah asks why Henry Jones calls Indiana "Junior". Henry tells Sallah it's Indiana's name, Henry Jones Jr, and that Indiana was the name of their dog. The four then ride out of the canyon, and into the sunset.