A framing device opens the film before commencing its narrative that winds up being an essential component of the thematic foundation of its Expressionist ideology. A young man named Francis sits in a courtyard with another man almost hypnotically induced by the sight of an irrefutably hypnotized woman named Jane walking past them. The sight of the woman under the influence of Mesmerism stimulates Francis to relate to his companion a story that can only be described as strange and bizarre. Thus begins the narrative proper.
A fair has set up shop in a town in northern Germany. The highlight attraction of the fair is the unarguably peculiar Dr. Caligari and the even more spectacularly unusual Cesare. Cesare is a sleepwalker endowed prophetic abilities when put under a trance by Caligari. There is a problem, however: Caligari must obtain a license from the local authorities before being allowed to perform. When he tries to get the license, the clerk with the power is very scornful of alleged “act” and laughs at him. The following morning that very same clerk is under the eternal trance of the big sleep: he has been stabbed to death.
At this point, Francis and a friend named Alan show up at the fair and enter the tent where Caligari performs. They watch as Cesare, deep within a trance, emerges from the cabinet of Dr. Caligari to answer questions posed by audience members. Alan inquires how much longer he will live and is chilled by Cesare’s response: just until the next dawn. Sure enough, the next morning Alan is not only dead, but stabbed to death. Francis connects the two unusually similar expirations by blade and suspects that Caligari and Cesare must be responsible.
Not only does Francis fail to find any evidence to support his suspicion, but another man is caught in the act of attempting to murder a woman. He claims to have nothing to do with the other two deaths, however. Francis still believes Caligari is somehow involved and returns to the fair at night to spy on the doctor. As he looks through the window into Caligari’s wagon, he sees that Cesare is there inside his box, apparently sleeping.
At the very same time that Francis sees Cesare sleeping in the cabinet, however, he is also standing over Jane holding a knife and on the verge of killing her. He does not follow through with inserting the blade into skin because her skin is so perfect. She is simply too beautiful to kill. So he abducts her instead, but the commotion awakes her father who chases after them along with some other townsfolk. After carrying her at a high rate of speed for a fair distance, Cesare tires and drops the girl before succumbing himself in a state of exhaustion. Although Jane is sure that it was the sleepwalker who took her, Francis swears that it’s not possible because he saw Cesare in Caligari’s cabinet at the exact moment she was abducted.
Francis and the police search Caligari’s wagon and the mystery is solved with precise simplicity: the Cesare that was in the cabinet is nothing more than realistic mannequin. Caligari makes his escape and finds sanctuary within an insane asylum. Francis followed and when he is introduced to the head of the asylum, he is stunned to discover that is none other than Dr. Caligari.
The asylum’s staff assist Francis by giving him access to the director’s personal records and diary while Caligari sleeps. Within these writing is revealed a story of obsession with a mystic from the 1700s named Caligari who used a somnambulist named Cesare to become a serial killer in Italy. In an attempt to study the mind of the real Caligari, the asylum director has been conducting experiments into somnambulism with a man he turns into a modern day Cesare. Convinced that the director is the most insane person in the asylum, Francis alerts the police who find Cesare’s dead body when they arrive at the asylum. When Caligari attacks a member of his staff, he is captured, restrained, place into a straitjacket and turned into an official inmate within the asylum he once oversaw.
A return to the framing story of Francis telling this story to his companion in the courtyard ends with the both of them returning to the madhouse. Amongst the other patients is Cesare. The director shows up and is immediately accused by Francis of being the insane Dr. Caligari.
The frame then closes as Francis finishes his story. He and his companion return to the asylum, whereupon they meet a group of other patients including Jane who is under the delusion that she is a queen and a very much alive and breathing Cesare. When the director appears, Francis accuses him of being Caligari and pounces upon him. Francis is capture, restrained, placed into a straitjacket and then unto the very same cell which Caligari occupied in his story. The director cryptically asserts that Francis can be cured now that he understands the nature of his delusion.