Peter Gibbons is a frustrated and unmotivated programmer who works at a Texas-based software company Initech. Unable to stand up to his overcritical girlfriend, Anne, he is in love with local waitress Joanna, but is afraid to speak to her. He is friends with co-workers Samir Nagheenanajar (who hates that no one can pronounce his name) and Michael Bolton (who hates having the same name as the famous singer). Other co-workers are Milton Waddams, a meek collator who mumbles to himself and is mostly ignored by the rest of the office; and Tom Smykowski, a jaded product manager who is routinely scared of being fired. The staff suffers under top-heavy, callous management, especially from vice president Bill Lumbergh, whom Peter hates and avoids confronting. Lumbergh takes obvious delight in micromanaging all his staff in a drab monotone way. He repeatedly makes Milton move his desk, and assigns him humiliating tasks, while making Peter work almost every weekend.
Anne persuades Peter to attend an occupational hypnotherapy session led by Dr. Swanson. Swanson hypnotizes Peter and tells him to feel relaxed and stop caring about his job until he snaps his fingers. However, Swanson suddenly dies of a heart attack before snapping Peter out of it. Peter sleeps soundly through the next day, ignoring phone calls from Lumbergh and Anne, who angrily breaks up with him while confirming suspicions that she has been cheating on him.
A pair of business consultants are brought in to help the company downsize, and Peter begins dating Joanna. She works at a trendy chain restaurant, and is required to wear "pieces of flair" (buttons allowing employees to "express themselves"). Her boss hassles her for not wearing more than the required minimum.
Peter eventually shows up to work and casually disregards office protocol, stealing Lumbergh's parking space, violating the dress code, and removing a cubicle wall that blocks his view out the window. Impressed by Peter's frank insights into Initech's problems, the consultants promote him despite Lumbergh's misgivings; however, Michael and Samir are both laid off. Milton is also expected to be laid off, but it is learned that it already happened five years ago but neither Milton nor the accounting department was notified due to a payroll glitch. Accounting is told to just stop Milton's salary payments without telling him. Milton is subjected to further mistreatment, including the confiscation of his beloved red stapler and the constant relocating of his desk, eventually down to the basement.
Tired of being mistreated, Peter, Michael, and Samir decide to take revenge by infecting Initech's accounting system with a computer virus designed by Michael to divert huge numbers of fractions of pennies into a bank account. Peter successfully installs the virus and on Michael and Samir's last day, he steals a frequently malfunctioning printer, which the three proceed to destroy in a field. At a weekend party, Peter hears rumors from a colleague that Joanna had slept with Lumbergh. When Joanna confirms this, a heated exchange leads to them breaking up. Frustrated with her job, Joanna quits in response to another lecture about her lack of "flair".
On Monday, Peter discovers that a bug in Michael's code has caused the virus to steal over $300,000 across the weekend, which guarantees they will be caught. Unable to conceal the crime, Peter decides to accept full responsibility, writing a confession and slipping it under Lumbergh's office door after hours, along with traveler's checks for the stolen money. Peter learns that the 'Lumbergh' with whom Joanna slept was Ron Lumbergh, another software engineer unrelated to Bill Lumbergh. He meets Joanna, who has started a new job at another restaurant. He apologizes, and they reconcile.
The next morning, Peter drives to Initech expecting to be arrested, but discovers that Milton has burnt down the building, destroying all evidence. Peter enjoys a new job as a construction worker with his neighbor, Lawrence, Samir and Michael begin new jobs at Initech's rival, Initrode, while Milton, having found the traveler's checks, goes on vacation in Mexico.
