Lester Burnham, a middle-aged media executive in suburbia, hates his job and is unhappily married to neurotic, ambitious real estate agent Carolyn. Their 16-year-old daughter, Jane, hates her parents and has low self-esteem. Retired Marine colonel Frank Fitts, his near-catatonic wife Barbara, and their teenage son Ricky move in next door. Ricky documents the world around him with a camcorder, collecting recordings on videotape in his bedroom, as he finds beauty in everyday occurrences. To pay for supplies, he deals marijuana, using his part-time catering jobs as a front. A strict and abusive disciplinarian, Frank previously had Ricky sent to a psychiatric hospital and a military academy. Gay couple Jim Olmeyer and Jim Berkley, also neighbors to the Burnhams, welcome the Fitts family, angering the homophobic Frank.
One evening during a cheerleading routine at a school basketball game, Lester becomes infatuated with Jane's friend Angela Hayes, who often brags to her classmates about being sexually experienced. He starts having sexual fantasies about her, in which red rose petals are a recurring motif. Carolyn begins an affair with married real estate rival Buddy Kane. Lester quits his job, blackmails his supervisor Brad into giving him a generous severance package, and starts working at the fast food restaurant Mr. Smiley's. He also buys his dream car, a 1970 Pontiac Firebird, and starts obsessively exercising with coaching from the Jims after overhearing Angela teasing Jane that she would have sex with Lester if he improved his physique. He begins smoking marijuana supplied by Ricky and returning Angela's flirts. The girls' friendship wanes when Jane starts a relationship with Ricky, whom Angela thinks is strange.
Lester discovers Carolyn's infidelity when she orders a meal with Buddy at Mr. Smiley's. Buddy fears a costly divorce and ends the affair, while Carolyn is humiliated and simultaneously frustrated by her lack of professional success. Frank finds Ricky's recording of a nude Lester working out and becomes suspicious of their friendship, assuming that they are sexually involved after spying on their drug session; he viciously accuses Ricky of being gay and expels him from the house, to which Ricky defiantly agrees. Carolyn, driving home, withdraws a handgun from the glove box as she listens to a self-help tape. At home, Jane argues with Angela over the latter's sexual interest in Lester when Ricky interrupts to ask Jane to leave with him for New York City, before he dismisses Angela as uninteresting and unattractive.
Frank tentatively approaches Lester, then breaks down and tearfully embraces him. Lester comforts Frank until Frank attempts to kiss him, so he gently rebuffs him. Lester finds Angela alone and consoles her, calling her beautiful. While Angela is uncertain about what she wants, Lester declares he wants her. As he begins to undress her on the couch, she admits her virginity. Lester realizes that she had feigned being sexually experienced, and he cannot continue. He comforts her as they share their frustrations. Angela goes to the bathroom as Lester smiles at a family photograph, when an unseen figure shoots Lester in the back of the head at point-blank range.
Ricky and Jane find Lester's body. In the master closet, Carolyn discards her gun and mournfully hugs Lester's clothing. A blood-soaked Frank returns home, a gun missing from his collection. Lester's closing narration describes meaningful experiences during his life, for which he expresses gratitude. Despite being murdered, he refuses to stay angry, now understanding that beauty can be found anywhere in the world.
