The film starts with a Polaroid photograph of a dead man. As the sequence plays backward, the photo reverts to its undeveloped state, entering the camera before the man is shot in the head. The film then continues, alternating between black-and-white and color sequences.
The black-and-white sequences begin with Leonard Shelby, a former insurance investigator, in a motel room speaking to an unseen and unknown caller. Leonard has anterograde amnesia and is unable to store recent memories, the result of an attack by two men. Leonard explains that he killed the attacker who raped and strangled his wife Catherine, but a second clubbed him and escaped. The police did not accept that there was a second attacker, but Leonard believes the attacker's name is "John G" or "James G". Leonard investigates using notes, Polaroid photos, and tattoos to keep track of the information he discovers. Leonard recalls Sammy Jankis, another anterograde amnesiac, from his insurance industry days. After tests confirmed Sammy's inability to learn tasks through repetition, Leonard believed that his condition was at best psychological (and perhaps faked) and turned down his insurance claim. Sammy's distraught wife repeatedly asked Sammy to administer her insulin shots for her diabetes, hoping he would remember having recently given her a shot and avoid giving her a fatal overdose. However, Sammy administered each injection, and his wife died.
The color sequences are shown reverse-chronologically. In the story's chronology, Leonard self-directively gets a tattoo of John G's license plate. Finding a note in his clothes, he meets Natalie, a bartender who resents Leonard because he wears the clothes and drives the car of her boyfriend, Jimmy Grantz. After understanding Leonard's condition, she uses it to get Leonard to drive a man named Dodd out of town and offers to run the license plate as a favor through the Department of Motor Vehicle's database. Meanwhile, Leonard meets with a contact, Teddy, who helps with Dodd, but warns about Natalie. Leonard finds that he had previously annotated his Polaroid of Teddy, warning himself not to trust Teddy. Natalie provides Leonard with the driver's license for a John Edward Gammell, Teddy's full name. Confirming Leonard's information on "John G" and his warnings, Leonard drives Teddy to an abandoned building, leading to the opening where he shoots him.
In the final black-and-white sequence, prompted by the caller, Leonard meets with Teddy, an undercover officer, who has found Leonard's "John G", Jimmy, and directs Leonard to the abandoned building. When Jimmy arrives, Leonard strangles him fatally and takes a Polaroid photo of the body. As the photo develops, the black-and-white transitions to the final color sequence. Leonard swaps clothes with Jimmy, hearing him whisper "Sammy". As Leonard has only told Sammy's story to those he has met, he suddenly doubts Jimmy's role in his wife's murder. Teddy arrives and asserts that Jimmy was John G, but when Leonard is undeterred, Teddy says that he helped him kill the real attacker a year ago, and Teddy has been using Leonard ever since. Teddy points out that since the name "John G" is common, Leonard will cyclically forget and begin his search again and that even Teddy himself has a "John G" name. Further, Teddy says that Sammy's story is Leonard's own story, a memory Leonard has repressed to escape feelings of guilt.
After hearing Teddy confess all of this, Leonard burns the photograph of the dead Jimmy and the photo of himself right after killing the real attacker a year ago, pointing to his chest where he would get a tattoo to document his successful revenge. In a monologue, Leonard explains that he is willing to lie to himself in order to get justice against anyone who has wronged him. He, therefore, targets Teddy by ordering a tattoo of Teddy's license plate number and writing a note to himself that Teddy is not to be trusted so that he will mistake Teddy for John G and kill him. Leonard drives off in Jimmy's car, confident that, despite this lie, he will retain enough awareness of the world to know that his actions have consequences.
