Two hunters pass through a forest searching for game. Unsuccessful, they believe they are in a Unicorn's forest, where animals are kept safe by a magical aura. Before they leave, one of the hunters calls out a warning to the Unicorn that she may be the last of her kind. Doubt and worry drive the Unicorn to travel through the land, discovering that humans no longer recognize her; instead they see a pretty white mare. She encounters a talking butterfly who warns that her kind have been herded to a far away land by a creature known as the Red Bull. She continues searching for other unicorns. During her journey, she is taken captive by a traveling carnival led by the witch Mommy Fortuna, who uses magical spells to make regular animals appear as mythical creatures. The Unicorn finds herself the only true legendary creature among the group, save for the harpy, Celaeno. Schmendrick, a magician traveling with the carnival, sees the Unicorn for what she is, and frees her. The Unicorn frees the other creatures including Celaeno, who kills Mommy Fortuna.
The Unicorn and Schmendrick travel toward the castle of King Haggard, where the Red Bull resides. When Schmendrick is captured by bandits, the Unicorn rescues him and attracts the attention of Molly Grue, the bandit leader's mistress. The three reach Hagsgate, the first town Haggard conquered when he claimed his kingdom. A villager named Drinn informs them of a curse that states that their town will share in Haggard's fortune until someone from Hagsgate brings Haggard's castle down. Drinn claims that he discovered a baby boy in the town's marketplace one night. He knew the child was the one the prophecy spoke of, but left the baby where he found it, not wanting the prophecy to come true. King Haggard found the baby and adopted it.
Molly, Schmendrick and the Unicorn continue to Haggard's castle, but are attacked by the Red Bull. Attempting to aid her, Schmendrick unwittingly turns the Unicorn into a human woman. Confused by the change, the Red Bull gives up the pursuit. The Unicorn suffers tremendous shock at the feeling of mortality. Schmendrick tells her that he is immortal and cannot make real magic unless he is mortal, and encourages her to continue her quest. The three continue to Haggard's castle, where Schmendrick introduces the Unicorn as "Lady Amalthea". They convince Haggard to allow them to serve him, hoping to gather clues as to the location of the other unicorns. Amalthea is romanced by Haggard's adopted son, Prince Lír. Haggard reveals to Amalthea that the unicorns are trapped in the sea for his own benefit, because the unicorns are the only things that make him happy. He then accuses Amalthea of coming to his kingdom to save the unicorns and says that he knows who she really is, but Amalthea has seemingly forgotten her true nature and her desire to save the unicorns.
Following clues given to them by a cat, Molly, Schmendrick, and Amalthea find the Red Bull's lair, joined by Lír. When the Red Bull attacks them, Schmendrick changes Amalthea back to her original form and he becomes mortal. Lír confronts the bull but is trampled. Fueled by anger and sorrow, the Unicorn drives the bull into the sea. The unicorns are freed, and they run back to their homes, with Haggard's castle falling in their wake.
The Unicorn revives Lír with the healing touch of her horn. Now king after Haggard's death, he attempts to follow the Unicorn. As they pass through the now-ruined town of Hagsgate, they learn that Drinn is Lír's father, who abandoned him to fulfill the prophecy. Realizing that he has new responsibilities as king after seeing Hagsgate, Lír returns to rebuild it after accompanying Schmendrick and Molly to the outskirts of his kingdom. The Unicorn returns to her forest after telling Schmendrick that she is different from all the other unicorns now, because she knows love and regret. Schmendrick and Molly come across a princess in trouble and he tells her to go to Lír because he is the hero to save her. Schmendrick and Molly sing a love song together.
