Helen Lyle (Virginia Masden) is an affluent young woman who is working with her good friend Bernadette "Bernie" Walsh (Kasi Lemmons), on a master's thesis involving modern folklore. Her husband, Trevor Lyle (Xander Berkeley), is a university professor, of whom she suspects infidelity with one of his younger students, and we suspect her home life isn't quite satisfying, despite the fact that she seems to be very much in love with Trevor. Helen and Bernie have been interviewing numerous people about various 'urban legend' type stories. One young woman tells them a story about "Candyman", a mythical being who has a hook instead of a right hand. The legend goes that Candyman will appear behind you if you say his name five times while looking in a mirror. Clara (Marianna Elliott) dares rebel other-boyfriend Billy (Ted Raimi) to repeat Candyman's name five times in front of the mirror while she's babysitting the Johnson family's baby. Billy only repeats it four times but when she is left alone in the bathroom, getting ready to lose her virginity to Billy and not Michael, her "too good" boyfriend, Clara repeats the name a fifth time. Then, she turns off the light and right behind her, Candyman's appears and kills her with her hooked arm.
As Helen reviews the recorded conversation in an empty classroom one night at the university, a cleaning woman overhears the story about Candyman and pays special attention to it. Henrietta Mosely (Barbara Alston) calls in another cleaning woman, Kitty Calver (Sarina C. Grant), who tells Helen about the murders that have taken place in Cabrini-Green, Chicago, the low income housing project where she lives. The people of Cabrini-Green have attributed the deaths to Candyman, as the victims have been butchered with a weapon determined to be a hook. The mention of the murders leads Helen to research it in archived newspapers, and she finds out the names of the victims. Even more intriguing to her is the fact that her own apartment building was designed exactly like Cabrini-Green; she learns that it was intended as another housing development, but eventually the idea was scrapped when the developers realized that the location was too desirable; Helen and Bernie theorize that the white developers relocated the housing project to a more forbidding area that would keep the ghetto separated from the rest of the city. Helen is aware that the units in her building are connected to one another through the medicine chests in the bathrooms; when removed, they reveal a small space that links the apartments together. Helen knows that Cabrini-Green's apartments must be the same, and that the stories of Candyman coming out of the medicine chest could indicate a human assailant who had also made this discovery. With Bernadette in tow, she visits Cabrini-Green and finds the apartment of one of the murder victims; on the other side of the medicine chest is a strange lair, with holes in the wall and elaborate graffiti-style artwork depicting a large man's head with a hole in the wall for a mouth. Helen is fascinated by it, as well as the fact that an altar appears to have been constructed there as well, with candy left behind as an offering.
Helen and Bernie meet Anne-Marie McCoy (Vanessa Williams), the neighbor of the deceased victim. Anne-Marie is initially hostile to them, as she feels the presence of white people in the all-black housing development indicates nothing but trouble (Bernie herself is black, but Helen is white, and the tenants they meet on the way inside mistake them for police officers). But eventually Anne-Marie softens and invites them into her apartment. Helen is taken by Anne-Marie's baby boy, Anthony (Lanesha Martin & Latesha Martin) admitting she would like to have a child of her own one day. Anne-Marie says that she is determined to make a better life for her son, one that does not involve Cabrini-Green or the drug-dealing youths that loiter on its grounds.
While at dinner one night with Bernie, Trevor, and a few of Trevor's colleagues, Helen makes the mistake of baiting Philip Purcell (Michael Culkin), a snobbish folklore expert, by mentioning her thesis project. Philip attempts to belittle Helen by telling her that he's already written an essay about Candyman. Philip shares with her Candyman's strange back story, revealing that he was the son of a slave who had come into a great deal of wealth due to an invention that became hugely successful. Candyman grew up well-schooled and comfortable, and was a prodigious artist who was in high demand among the wealthy to paint their portraits. Eventually Candyman had an affair with the daughters of one of his wealthy white clients, and when she became pregnant the man exacted a horrible revenge on Candyman. He sent hired goons to attack Candyman, cutting off his right hand, stripping him nude, and smearing him with the honeycomb of a hive of angry bees. He was killed by the numerous bee stings. Philip claims that it all took place on the site where Cabrini-Green now stands.
Even more intrigued, Helen returns to the building on her own. When she finds Anne-Marie is not home, she meets a young boy named Jake (DeJuan Guy) who gives her more information. Another death in the project was attributed to Candyman, the brutal castration of a young boy (Kenneth A. Brown) who entered a filthy public men's room only to meet an attacker who cut off his genitals, resulting in his death. When Jake takes Helen to the site, she goes inside and starts taking photographs, but a group of young toughs enters after her. One man (Terrence Riggins) approaches her and announces that he is Candyman, and his is carrying a large hook, which he uses to beat Helen's face, knocking her unconscious. Later in a police lineup, she identifies her assailant, much to the satisfaction of Detective Frank Valento (Gilbert Lewis), who informs Helen that the young man who beat her was suspected of the previous murders. He had been using the legend of Candyman to frighten the residents of Cabrini-Green into silence, and Helen's testimony will help to put him away. Helen meets Jake there at the police station, and she thanks him for his help, explaining that her attacker was human and that Candyman is not real. Jake almost seems disappointed.
Some time later, Helen and Bernie have a discussion where Helen reveals that she is unsettled by the fact that the two murders, both of which featured black victims, went practically unnoticed, while her own mere assault caused a lockdown of Cabrini-Green, presumably because she was a white victim. Bernie surprises her with slides from her camera, which Helen had assumed was a complete write-off after the attack in the men's room. On the way back to her car, Helen looks at the slides, when suddenly she is confronted by a strange figure, a tall black man wearing a long coat and speaking in an unearthly voice. She realizes this is Candyman, although she can barely comprehend how it is possible. Candyman urges Helen to become his victim, almost as if he were speaking to a lover. He tells Helen that because she has exposed the real killer at Cabrini-Green, she has caused a sudden rift in his world; the belief in him by hundreds of people is what allows him to go on living. Helen's incident has caused this belief to drop, and now he is in danger of ceasing to exist entirely. Candyman intends to kill Helen, which would then give rebirth to his legend and cause belief to surge once more. Helen swoons and loses consciousness.
When she awakens, she is disoriented, and realizes that she is somehow in Anne-Marie's apartment. She is covered in blood, and Anne-Marie is screaming hysterically in another room. A meat cleaver is lying next to Helen, and she picks it up, terrified at what she may find going on in the other room. She finds Anne-Marie's dog, decapitated, its blood everywhere. Anne-Marie is screaming over the empty crib of her son, who is now missing. When she sees Helen approaching her with a cleaver, she immediately thinks Helen is responsible, and she rushes at her, attacking her. When it seems as if Anne-Marie may kill her, Helen strikes her with the cleaver, wounding her shoulder, just as police break though the door of the apartment and surround Helen.
At the precinct, Helen is subjected to a strip search in a humiliating way by a rude policewoman (Rusty Schwimmer) who would not even get close to her, only bluntly asking her to take off all her clothes. Later, Detective Valento appears, this time speaking furiously to Helen. It is clear that everybody thinks she is responsible for the attack and kidnapping of Anne-Marie's child. She makes a phone call to Trevor, only to discover that Trevor is somehow not home, even though it is 3am. The next day he comes for Helen and takes her home, helping her though a throng of reporters and news cameras. Her lawyer (John Rensenhouse) tells Helen that the prosecutors seem to have released her because they think the child's body will turn up and they will then charge Helen with murder 1, which he thinks is unlikely to stick. Helen is somewhat comforted, but she still cannot comprehend what has happened to her. She questions Trevor about where he was at 3am, and he claims he was home, sleeping.
The next day, Helen looks more at the slides she took at Cabrini-Green, and in one shot she is able to see Candyman standing behind her, even though he was not there when she took the shot. He then appears to her once again, emerging from her medicine chest, then seemingly everywhere at once. She cannot escape him. He talks to her again, saying she belongs to him and that she will be immortal if she surrenders to him. She is paralyzed with fear, but she hears Bernie knocking at the door to her apartment, carrying a spray of flowers, presumably to cheer Helen. Helen tries to scream and warn her, but Bernie enters and is killed by Candyman.
This time Helen awakens under much more dire circumstances. Trevor enters the room and she watches bloodied Helen holding a knife asking him to help her. She gets handcuffed to a gurney and being given injections. She breaks free from her police guard and rushes into the other room to see Bernie's mutilated corpse. As Helen is taken away in a police car, she hears Candyman's voice, and she begs him not to hurt the baby. Helen is taken to an institution and strapped down and injected, but when she is alone, Candyman appears to her again, hovering in the air over her. He tells her that her life is over and that she belongs to him now. When she screams for help, medics come in and of course, they cannot see Candyman, only Helen.
Helen is eventually taken to see Dr. Burke (Stanley DeSantis), who informs her that he is working for her defense. Helen is astonished to learn that she has been in the facility for an entire month, under heavy sedations. When they breach the subject of Candyman, Helen "calls" for him by looking into a mirror and saying his name five times. Candyman appears and kills Dr. Burke, then slashes Helen's bonds. He levitates through a window and disappears, smashing the glass. Helen uses the window to escape, edging her way to another room and knocking a nurse unconscious, stealing her uniform and ultimately escaping the hospital.
Helen goes home to her apartment and is in for an even greater shock: Trevor has moved his young student in, and they are in the process of completely redecorating the apartment. They are terrified to see Helen, as she has been accused of savage crimes. She tells Trevor he was all she had left in the world, and then she leaves, much to their relief. With nowhere else to go, Helen goes to Cabrini-Green and seeks out Candyman's lair. She finds him asleep and tries to kill him with a hook, but he awakens and tells her to surrender to him. He promises Helen that the pain of her death will be "exquisite", and that she needn't fear the afterlife, as she will be immortal like he is. He tries to kiss Helen and bees swarm out of his mouth and his body, stinging Helen, and she swoons.
Helen regains consciousness and finds that she is alone. Looking at the walls of the lair, she realizes, through paintings he has done on the walls, that she herself is the image of Candyman's lost love, the young woman that he lost his life over many years before. Wandering outside, she hears the baby crying from somewhere nearby, and realizes that Anthony is inside the large pile of scrap wood and garbage that the resident of Cabrini-Green intend to burn for a bonfire. When she goes into the pile to rescue him, Jake awakens and sees her scrambling among the garbage, with a hook in her hand. Mistaking her for Candyman, Jake alerts a group of other residents and together they go outside with gasoline and torches to burn Candyman alive on the bonfire. As the flames spread, Helen reaches the baby inside the bonfire, but Candyman appears to restrain her from escaping. He encourages Helen to stay with him and be burned alive in order to fuel their own legend. Helen fights back, impa.ling Candyman with a burning shard of wood, and she manages to crawl out of the fire while protecting baby Anthony. Anne-Marie sees them and is overcome, both by finding her child alive and realizing that Helen has delivered him safely out of the burning wreckage. Badly burned by the fire, Helen dies.
At Helen's funeral, Trevor a few others are the only mourners, until suddenly they look up and see a huge group of residents from Cabrini-Green marching among the gravestones, making their way to her gravesite. Anne-Marie and Jake are at the forefront. Anne-Marie is carrying baby Anthony triumphantly. Jake removes Candyman's hook from under his coat, apparently pulled from the ashes of the fire. He drops it into Helen's grave.
After the funeral, Trevor and his new girlfriend Stacey (Carolyn Lowery) are at their apartment, the same apartment where Helen used to live. Trevor has isolated himself in the bathroom, shaking with grief, while the young girl angrily waits in the kitchen, seemingly annoyed that Trevor is greiving the loss of his wife. Sobbing, Trevor looks in the mirror and mumbles Helen's name and over and over. Suddenly, Helen appears behind him, a ghostly apparition holding a hook. She uses the hook to murder Trevor, gutting his body and leaving it lying in the tub for his new girlfriend to find. Her own legend has just begun.