In a dystopian, polluted, hyper-consumerist, overbearing, bureaucratic, totalitarian future based on elements of the 20th century, Sam Lowry is a low-level government employee who frequently dreams of himself as a winged warrior saving a damsel in distress. One day, shortly before Christmas, an insect becomes jammed in a teleprinter, which misprints a copy of an arrest warrant it was receiving. This leads to the arrest and death during interrogation of cobbler Archibald Buttle instead of suspected terrorist Archibald Tuttle.
Sam discovers the mistake when he discovers the wrong bank account had been debited for the arrest. He visits Buttle's widow to give her the refund where he catches a glimpse of her upstairs neighbour Jill Layton, a truck driver, and is astonished to discover that Jill resembles the woman from his dreams. Sam frantically tries to approach Jill, but she disappears before he can find her. Jill has been trying to help Mrs Buttle establish what happened to her husband, but her efforts have been obstructed by bureaucracy. Unbeknownst to her, she is now considered a terrorist accomplice of Tuttle for attempting to report the wrongful arrest of Buttle.
Meanwhile, Sam reports a fault in his apartment's air conditioning. Central Services are uncooperative, but then Tuttle unexpectedly comes to his assistance. Tuttle explains that he used to work for Central Services but left because of his dislike of the tedious and repetitive paperwork, and now works illegally as a freelance heating engineer. Tuttle repairs Sam's air conditioning, but when two Central Services workers, Spoor and Dowser, arrive, Sam has to stall to let Tuttle escape.
Sam discovers that Jill's records have been classified and the only way to access them is to be promoted to Information Retrieval. He had previously turned down a promotion arranged by his high-ranking mother, Ida, who is obsessed with the rejuvenating plastic surgery of cosmetic surgeon Dr Jaffe. Sam retracts his refusal by speaking with Deputy Minister Mr Helpmann at a party hosted by Ida. After obtaining Jill's records, Sam tracks her down before she can be arrested. Sam clumsily confesses his love to Jill, and they cause mayhem as they escape government agents. They stop at a mall and are frightened by a terrorist bombing (part of a campaign that has been occurring around the city), then government agents arrive and take Sam. He awakens briefly detained in police custody.
At work, Sam is chastised by his new boss Mr Warrenn for his lack of productivity. Sam returns home to find that Spoor and Dowser have repossessed his apartment. Tuttle then appears in secret and helps Sam enact revenge on the two Central Services workers by filling their hazmat suits with raw sewage. Jill finds Sam outside his apartment and the two take refuge in Ida's unoccupied home, where they share their first kiss. Sam falsifies government records to indicate her death, allowing her to escape pursuit. The two have sex overnight, but in the morning are apprehended by the government at gunpoint. Sam is told that Jill was killed while resisting arrest. Charged with treason for abusing his new position, Sam is restrained in a chair in a large, empty cylindrical room, to be tortured by his old friend, Jack Lint.
As Jack is about to start the torture, Tuttle and other members of the resistance break into the Ministry, shooting Jack, rescuing Sam, and blowing up the Ministry building. Sam and Tuttle flee together, but Tuttle mysteriously disappears amid a mass of scraps of paperwork from the destroyed building. Sam stumbles into the funeral of Ida's friend, who has died following botched cosmetic surgery. Sam discovers that his mother now resembles Jill, and is too busy being fawned over by young men to care about her son's plight. Government agents disrupt the funeral, and Sam falls into the open casket. Through a black void he lands in a street from his daydreams, and tries to escape police and monsters by climbing a pile of flex-ducts. Opening a door, he passes through it and is surprised to find himself in a truck driven by Jill. The two leave the city together. However, this "happy ending" is a delusion: it is revealed that Sam is still strapped to the torture chair. Realising that Sam has descended into irrecoverable insanity, Jack and Mr Helpmann declare him a lost cause and leave the room. Sam remains in the chair, smiling and humming "Aquarela do Brasil" to himself.
