Walter Mitty is a negative assets manager at Life magazine who daydreams of adventures and has a crush on a coworker named Cheryl Melhoff. Mitty works with photojournalist Sean O'Connell, whose images are highly regarded. O'Connell has sent Mitty his latest negatives and a wallet as a gift in appreciation of Mitty's work. O'Connell believes negative #25 captures the "quintessence of Life" and that it should be used for the cover of the magazine's final print issue as it converts to online status. The negative is missing, forcing Walter to stall for time with corporate transition manager Ted Hendricks, who is handling the downsizing. While he views the other negatives, Cheryl suggests that Mitty think of the negatives as clues to Sean's location. They look at three of them, including one of a person's thumb with a unique ring on it, and another of a curved piece of wood. A third picture of a boat leads Mitty to ascertain that O'Connell is in Greenland. Mitty flies there to find him.
A bartender in Nuuk explains that O'Connell left on a ship. To find him, Mitty would need to go on the postal helicopter, and the pilot is drunk. Mitty recognizes the pilot's thumb with the unique ring. After he imagines Cheryl singing "Space Oddity", Mitty gains a new confidence and boards the helicopter despite misgivings. Mitty learns the helicopter cannot land upon the ship. Misunderstanding the pilot, Mitty falls into the ocean rather than jumping into a dinghy boat. He splashes down into ice-cold, shark-infested waters, losing a box of ship-to-shore radio components before being brought aboard.
Mitty learns that O'Connell departed the ship earlier. The crew offers him clementine cake O'Connell left behind; Mitty discovers O'Connell's destinations in the wrapping paper. The itinerary directs Mitty to Iceland, where O'Connell is photographing the volcano Eyjafjallajökull. He arrives at the village of Skógar near the volcano using a longboard, and notices O'Connell on a plane flying near the volcano. An eruption forces Mitty to flee, and he obeys a text message recalling him to New York.
For failing to recover the negative, Mitty is fired. He learns that Cheryl, who was let go earlier, seems to have reconciled with her estranged husband. Mitty returns home discouraged and visits his mother, throwing away the wallet he received from O'Connell. To his surprise, Mitty recognizes the curve of the piano in his mother's house while looking at the last photograph. When asked, she mentions having met O'Connell. She told Mitty earlier, but he was daydreaming and failed to hear her.
Mitty discovers O'Connell is in the Himalayas, and finds him photographing a rare snow leopard. When asked about the negative, O'Connell explains that the message on the gift wrapping to "look inside" was literal; the negative was in the wallet. When pressed to reveal the image on the negative, O'Connell dismisses the question and joins in a high-altitude football game with some locals. Mitty flies to Los Angeles but is detained by airport security during a misunderstanding. Mitty calls the only person he knows in Los Angeles: Todd Maher, a representative at eHarmony who has kept in contact during Mitty's adventures.
While helping his mother sell her piano, Mitty recounts his story but mentions he discarded the wallet. His mother gives him the wallet, which she retrieved from the trash. Finding the negative, an emboldened Mitty delivers it to Life magazine, telling management that it was the photograph O'Connell wanted for the final issue, and berates Hendricks for disrespecting the staff that made the magazine so honored before walking away from the office.
Mitty reunites with Cheryl, telling her that he has been thinking about and inspired by her, and learns that Cheryl's ex-husband was only at her house to repair the refrigerator. Mitty tells Cheryl of his adventures and admits that he does not know what negative #25 shows. Mitty and Cheryl see the final issue of Life at a newsstand, with its cover dedicated to the staff. It is accompanied by the photograph from negative #25, showing Mitty sitting outside of the Life building, examining a contact sheet. Mitty and Cheryl continue their walk down the street holding hands.