The Grand Illusion is set during World War I and follows Captain de Boëldieu (a wealthy man) and Lieutenant Maréchal (a working-class man), who set out to investigate a blurry spot on a photo that one of the reconnaissance planes took. The two procure a plane and fly to the spot to investigate it but are shot down by a German officer named von Rauffenstein, who takes the duo as his prisoner. After the duo is taken back to the aerodrome (the place where aircraft are launched), von Rauffenstein sends a subordinate out to determine if de Boëldieu and Maréchal are officers. And if they are, von Rauffenstein says to his subordinate, then they should be invited to lunch. They are officers and are invited to lunch. There, von Rauffenstein and Boëldieu discover that they have something in common with each other.
After their lunch with von Rauffenstein, de Boëldieu and Maréchal are taken to a prisoner-of-war camp. There, they meet an energetic group of French soldiers who stage a Vaudeville performance to keep their spirits high. During the performance, however, Maréchal interrupts the performance to tell everyone that the French had captured a very important fort from the German army. After hearing the good news, the soldiers in turn break out into a song. Because of this song, Maréchal is thrown into solitary confinement, where he suffers tremendously. In the meantime, the soldiers begin to dig escape tunnels but are transferred to another camp before they can be completed.
de Boëldieu and Maréchal are eventually moved to Wintersborn, a fortress, and prison in the mountains that is run by von Rauffenstein, who was injured in battle. von Rauffenstein tells the two men that they should not even attempt to escape Wintersborn because, in his mind at least, the prison is escape-proof. de Boëldieu and Maréchal don't accept this and begin to plot their escape with the help of another named Rosenthal, who they knew from a previous camp.
de Boëldieu decides to distract the guards so that Maréchal and Rosenthal could escape. The prisoners cause a commotion, which allows de Boëldieu to position himself somewhere in the fortress. As a result of the commotion, the guards round up the prisoners and do a roll call. As expected, de Boëldieu is missing. But he quickly makes his presence known to the guards, who start to chase him. In turn, Maréchal and Rosenthal grab a rope and escape.
In the meantime, the guards start to shoot at de Boëldieu. But von Rauffenstein orders his guards to stop firing at him, hoping that his new friend would come down from his hideaway willingly. de Boëldieu refuses, and von Rauffenstein shoots him in his stomach (though he was aiming for his legs). de Boëldieu dies, and he and von Rauffenstein have a conversation about the war, its destructive qualities, class, purpose, and friendship.
Meanwhile, Rosenthal and Maréchal journey across the German countryside to reach Switzerland, which is neutral and not a party to the war. Along the way, Rosenthal injures his foot. He implores Maréchal to leave him and Maréchal does briefly. However, he returns to help Rosenthal. The two then take refuge in a German woman's house named Elsa. Maréchal and Elsa fall in love (despite not speaking each other's languages), but Maréchal feels a sense of duty to go with Rosenthal to Switzerland. He promises, though, that he will return for Elsa and her daughter. And ultimately, the two eventually reach Switzerland.
