Two teenage girls, 16-year-old Katie Embry (Amber Tamblyn) and 17-year-old Becca Kotler (Rachael Bella), discuss a supposedly cursed videotape while home alone at Katie's house. Katie reveals that, seven days before, she went to a cabin at Shelter Mountain Inn with friends, where she viewed the video tape. The girls laugh it off, but after a series of strange occurrences in the next few minutes, involving a television in the house turning itself on, Katie dies mysteriously and horrifically while Becca watches, leading to Becca institutionalization in a mental hospital.
Katie's 9-year-old cousin, Aidan (David Dorfman), is visibly affected by the death. After Katie's funeral, Rachel's sister Ruth Embry (Lindsay Frost) asks Rachel (Naomi Watts), Aiden's mother and a journalist, to investigate Katie's death, which leads her to the cabin where Katie watched the tape. Rachel finds and watches the tape; the phone rings, and she hears a child's voice say "seven days", upsetting Rachel. The next day, Rachel calls Noah (Martin Henderson) Aiden's father, to show him the video and asks for his assistance based upon his media-related skills. He asks her to make a copy for further investigation, which she does, but later takes it home herself. To Rachel's horror, she discovers Aidan watching the copy a few days later.
After viewing the tape, Rachel begins experiencing nightmares, nose bleeds, and surreal situations (for instance, when she pauses a section of the tape in which a fly runs across the screen, she is able to pluck the fly from the monitor). Increasingly anxious about getting to the origin of the tape, Rachel investigates images of a woman seen in the tape. Using a video lab, she discovers images in the tape's overscan area, which through further research she discovers to be a lighthouse located on Moesko Island. The woman turns out to be Anna Morgan, who lived on the island in Washington, many years prior with her husband Richard (Brian Cox). Rachel discovers that, after bringing home an adopted daughter, tragedy befell the Morgan ranch – the horses raised on the ranch went mad and killed themselves, which in turn supposedly had caused Anna to become depressed and commit suicide. Rachel goes to the Morgan house and finds Richard, who refuses to talk about the video or his daughter and sends Rachel away. A local doctor tells Rachel that Anna could not carry a baby to term and adopted a child named Samara (Daveigh Chase). The doctor recounts that Anna soon complained about gruesome visions that only happened when Samara was around, so both were sent to a mental institution. While Rachel is investigating on Moesko Island, Noah is investigating the institution, where he finds Anna's file and discovers that there was a video of Samara, but the video is missing. Meanwhile, back at the ranch, Rachel sneaks back to the Morgan house where she discovers the missing video, watches it, and is confronted by Richard who says that the girl was evil. He then electrocutes himself in the bathtub, sending Rachel running out of the room screaming.
Noah arrives and, with Rachel, goes to the barn to discover an attic where Samara was kept by her father. Behind the wallpaper they discover an image of a tree seen on the tape, which grows near the Shelter Mountain Inn. At the inn, they discover a well underneath the floor, in which Rachel finds Samara's body, experiencing a vision of how her mother pushed her into it. Rachel notifies the authorities, and gives Samara a proper burial.
Rachel informs Aidan that they will no longer be troubled by Samara. However, Aidan is horrified, telling his mother she had freed her body, and that Samara "never sleeps". In his apartment, Noah's TV turns on, revealing an image in which a decaying Samara crawls from the well and out of the TV into the room. Horrified, Noah trips backward and tries to crawl away from Samara. Samara faces him, exposes her true face and stares directly at him, killing him with fear, which Rachel discovers after racing to his apartment and seeing his face distorted like Katie's was. Upon returning to her apartment, Rachel destroys and burns the original tape. Wondering why she had not died like the others, she remembers that she made a copy of the tape. She soon notices the copy of the tape underneath the couch. Rachel realizes the only way to escape and save Aidan is to copy the tape and show it to someone else, continuing the cycle. The film ends with Rachel helping Aidan to copy the tape.