On Halloween, Deborah Myers (Sheri Moon Zombie) is called into her son Michael's (Daeg Faerch) school after the principal becomes concerned with Michael's behavior, as well as the discovery of a series of Polaroids of dead animals Michael keeps in his locker. Present at the meeting is Dr. Samuel J. Loomis (Malcolm McDowell), a child psychologist, who informs Deborah that Michael displays the warning signs of a psychopath and urges her to allow him to further assess the boy. Earlier that day, Michael had been bullied in the bathroom over a flyer advertising Deborah's strip club, where she was a dancer. Michael followed one of the bullies into the woods and brutally beat him to death with a tree branch. That night, Michael goes home and murders his mother's boyfriend (William Forsythe), his sister Judith (Hanna R. Hall), and her boyfriend (Adam Weisman). Deborah returns home to find Michael bloodied and sitting on the porch with his baby sister. Michael is convicted of first degree murder and taken to Smith's Grove Sanitarium, where he is placed under the supervision of Dr. Loomis. For the first eleven months, Michael cooperates with Dr. Loomis, claiming no memory of killing anyone. Deborah visits him regularly, where he shows her the papier-mâché Halloween masks he has been constructing in his room and wearing all day. One night, Michael befriends orderly Ismael Cruz (Danny Trejo), an ex-con who teaches Michael to cope with incarceration by internalizing himself. Michael takes the advice literally, entering a state of semi-catatonia. Shortly thereafter, he kills a nurse (Sybil Danning); Deborah Myers, who saw the event, returns home that night and kills herself. For the next fifteen years, Michael (Tyler Mane) continues making his masks and not speaking to anyone. Dr. Loomis, wanting to move on with his life, retires, deeming his former charge a true psychopath and writing a book about his time working with Michael. Michael is scheduled to be transported to maximum security, but breaks free of his chains, murdering all of his guards, and escapes. He finds his way to a truck stop and murders a driver for his clothes. Michael returns to his childhood home and retrieves a kitchen knife and a Halloween mask he stole from his sister's boyfriend from underneath some floorboards.

The story shifts to Laurie Strode (Scout Taylor-Compton), and her friends Annie Brackett (Danielle Harris) and Lynda Van Der Klok (Kristina Klebe) on Halloween. Throughout the day, Laurie witnesses Michael watching her from a distance. That night, she heads to the Doyle residence to watch their son Tommy Doyle, who persistently asks her about the boogeyman. Meanwhile, Lynda meets with her boyfriend Bob (Nick Mennell) at Michael Myers' childhood home, where they drink beer and have sex. After they finish having sex, Michael appears, murders them, and then heads to the Strode home, where he murders Laurie's parents. Having been alerted to Michael's escape, Dr. Loomis comes to Haddonfield looking for Michael. After obtaining a .357 Magnum handgun, Loomis approaches Annie's father, the town sheriff, telling him that Michael has returned home and that people's lives are in danger. Sheriff Brackett (Brad Dourif) and Dr. Loomis head to the Strode home, Brackett explaining along the way that Laurie is actually Michael Myers' baby sister. He was the responding officer the night of Deborah Myers' suicide; not wanting the infant to grow up with the stigma of being related to Michael, he faked her disappearance and left her at a nearby hospital.

Meanwhile, Laurie gets a call from Annie, who is babysitting Lindsey Wallace across the street from the Doyle home; Annie convinces Laurie to watch Lindsey long enough so she can have sex with her boyfriend Paul. Annie and Paul return to the Wallace home; during sex, Michael murders Paul and beats Annie until she is unconscious. Bringing Lindsey home, Laurie finds Annie on the floor, bloodied, and calls 911. She is attacked by Michael, who chases her back to the Doyle home. Sheriff Brackett and Loomis hear the 911 call and head to the Wallace residence. Michael kidnaps Laurie, and takes her back to his home. At the Myers home, Michael approaches Laurie and tries to show her that she is his younger sister. Unable to understand, Laurie grabs Michael's knife and stabs him before escaping the house; Michael chases her, but is repeatedly shot by Dr. Loomis. Loomis and Laurie are just about to leave when Michael grabs Laurie and heads back to the house. Loomis intervenes, but Michael kills him by crushing his skull. Laurie takes Loomis' gun and runs upstairs; she is chased by Michael, who, after cornering her on a balcony, charges her head-on and knocks both of them over the railing. Laurie finds herself on top of a bleeding Michael. Aiming Loomis' gun at his face, she repeatedly pulls the trigger until the gun finally goes off just as Michael's hand grips Laurie's wrist.