In 1989, Kevin Flynn (Jeff Bridges), the innovative software engineer and the CEO of ENCOM International, disappears. Twenty years later, his son, Sam (Garrett Hedlund), now ENCOM's controlling shareholder, takes little interest in the company besides an annual practical joke on the board of directors. Sam is visited by his father's friend, ENCOM executive Alan Bradley (Bruce Boxleitner), urging Sam to investigate a mysterious page originating from Flynn's abandoned arcade. There, Sam discovers a concealed computer laboratory and unintentionally teleports himself to the Grid, a virtual reality created by his father.
On the Grid, Sam is captured and sent to compete against a masked program called Rinzler. Realizing that Sam is a User, Rinzler takes him to CLU, the world's ruler, who is physically identical to a younger Kevin Flynn. CLU nearly kills Sam in a Light Cycle match; but Sam is rescued by Quorra (Olivia Wilde), an apprentice of his father's, who conveys him to his father outside CLU's territory. There, Flynn reveals to Sam that he had been working on a new, "perfect" system and had appointed CLU and Tron, a security program created by Alan Bradley, as its co-creators. After much work, Flynn discovered a new series of sentient "isomorphic algorithms" (ISOs), self-produced Programs that spontaneously evolved in the system, which carried the potential to resolve various mysteries in science, religion, and medicine; but CLU, considering these an aberration, betrayed Flynn, captured Tron, and destroyed most of the ISOs, with the sole exception of Quorra. Meanwhile, the "portal" permitting travel between the two worlds has closed, leaving Flynn a captive; wherefore CLU sent the page that originated from the arcade, hoping to summon an individual to draw Flynn out of hiding and re-open the portal.
Against his father's wishes, Sam returns to the Grid to find Zuse, a program promised to provide safe passage to the portal. The End of Line Club owner, Castor (Michael Sheen), reveals himself to be Zuse and betrays him to CLU's guards. In the resulting fight, Flynn appears to rescue his son, Quorra is injured, and Zuse gains possession of Flynn's 'identity disc'. Knowing the disc works as a master key to the Grid, Zuse attempts to use it to bargain with CLU; but CLU simply takes it and destroys the club. Flynn and Sam save the injured Quorra and stow away aboard a freighter heading towards the portal, where Flynn restores Quorra and reveals her to be the last surviving ISO.
The three unexpectedly arrive at a station aboard a massive warship and encounter Rinzler. As Quorra attempts to distract him, Flynn recognizes Rinzler as Tron, reprogrammed by CLU to serve him. Meanwhile, CLU announces his desire to enter the real world to his massive army as his warship heads towards the portal. Sam saves Quorra from Rinzler and reclaims Flynn's disc. The trio use an aerial shuttle and flee, but CLU, Rinzler, and several guards pursue them in Light Jets. After making eye contact with Flynn, Rinzler remembers his original identity and collides with CLU's Light Jet. CLU uses Tron's Light Jet to escape while Tron falls into the Sea of Simulation, where his armor converts from red to blue.
Sam, Flynn and Quorra eventually reach the portal, only to find CLU blocking their path. After attempting to reason with CLU, Flynn sacrifices himself by merging with CLU, while Sam and Quorra use Flynn's disc to travel through the portal back to the real world. Flynn and CLU's merge causes a massive explosion that destroys them both, as well as CLU's army and his warship.
Back in the basement of Flynn's arcade, Sam backs up the system onto his flash drive and powers it off. He then meets Alan and tells him that he will start working at ENCOM, and, as the controlling interest shareholder, he will name Alan chairman of the board. Quorra meets Sam outside, and the two take off on his motorcycle. The movie ends with Sam showing Quorra the sunrise she has longed to see.