At the beginning, Kaufman's foreign man comes on saying (due to massive editing) it is the end of the film and plays a record alongside the end credits before walking off. Kaufman then comes back on in his normal voice saying he "Had to get rid of the people who don't understand me, and don't want to try". He then proceeds to show the actual movie on a film projector starting with his childhood home, in Long Island, New York 1957.
Flashing forwards to New York City, 1973, Andy Kaufman (Jim Carrey) is a struggling performer whose act fails in nightclubs because, while the audience wants comedy, he sings childrens songs and overuses his "foreign man" character. Just as it becomes clear that Kaufman may have no real talent, he puts on a rhinestone jacket and does a dead-on Elvis impersonation and song. The audience bursts into applause, realizing Kaufman had tricked them making his big Elvis payoff all the more enjoyable. This is the first of many times we see Kaufman trick the audience, as "fooling the audience" is his performance style.
His autistic, eccentric style catches the eye of talent agent George Shapiro (Danny DeVito), who signs him as a client and immediately gets Kaufman on a new sitcom, 'Taxi' in 1975, much to the dismay of sitcom-hating Kaufman. Because of the money, visibility, and chance to do his own television special, Kaufman acts on Taxi, but secretly hates it and works a second menial job as a restaurant busboy. Around this time, he gains popularity by making successful guest appearances on the new show 'Saturday Night Live'.
At a nightclub, Shapiro witnesses a performance from a rude, loud-mouthed lounge singer named Tony Clifton, whom Andy wants to guest-star several times on Taxi on his terms, and whose bad attitude is matched by his horrible appearance and demeanor. When Clifton meets Shapiro privately, Clifton takes off his sunglasses and we see that he is actually Kaufman. Clifton is a villain character created by Kaufman and his creative partner, Bob Zmuda (Paul Giamatti), both of whom portray the character onstage at different times. Once again, the gag is on the audience.
In 1980, Kaufman begins to have problems with his newfound fame. When he travels to college campuses, he wants to perform as he did in nightclubs, but the crowds dislike his strange sense of humor and simply want to see his more famous characters, such as Latka Gravas from Taxi and the Mighty Mouse singer from SNL. Frustrated by his dislike for Taxi, Kaufman appears on the set as Clifton and proceeds to cause chaos until he is removed from the studio lot. Kaufman relates to Shapiro that he never knows exactly how to entertain an audience ("short of faking my own death or setting the theater on fire"), so he does as he pleases.
With the help of Zmuda, Kaufman decides he wants to be a professional wrestler but to increase the villain angle, he decides to wrestle only women and berate them after winning, declaring himself "Inter-Gender Wrestling Champion." He becomes smitten with one woman he wrestles, Lynne Margulies (Courtney Love). Continuing his villain wrestling character, Kaufman is despised by much of America, as he enjoys getting a rise out of everyone but fails to see that this affects his popularity (as the world fails to see he is simply playing a character, and not just being himself). Professional male wrestler Jerry "The King" Lawler challenges Kaufman to a "real" wrestling match, which Kaufman accepts. Lawler easily overpowers and seriously injures Kaufman, resulting in a major neck injury for Kaufman. When Lawler and an injured Kaufman appear on NBC's Late Night With David Letterman, Lawler attacks Kaufman again, and Kaufman spews out a vicious tirade of epithets. Once again, the joke is on the audience, as Lawler and Kaufman are revealed to be friends, and in on everything together. Unfortunately, Andy pays the price for this when he is voted off Saturday Night Live by television audience members.
In 1983, Andy and Lynne move into a new house, and George calls to inform them that Taxi had been canceled, to the indifference of Kaufman. A few minutes later, Andy feels a boil on the back of his neck that is later revealed to be a cyst. In November, after gathering a meeting with his friends and family, Kaufman reveals that he has a rare form of lung cancer and may die soon. Many friends and family members refuse to believe this, thinking it another Kaufman stunt (and Zmuda actually believes a fake death would be a fantastic prank).
By early 1984, Kaufman, aware that he may not have much time left, gets a booking at Carnegie Hall, his dream venue. The performance is a memorable success, and it culminates with Kaufman inviting the entire audience out for milk and cookies. Kaufmans health quickly deteriorates, and, out of options, he heads to the Philippines to seek a medical miracle (actually psychic surgery), where doctors supposedly pull out infected organs in the body. Kaufman immediately recognizes it as a scam similar to his own type of performance art, and the realization makes him laugh hysterically as the joke is on him for once. After returning to Los Angeles, Kaufman dies a few months later from the cancer at age 35.
One year later, in 1985, Tony Clifton appears at Andy Kaufman's memorial tribute at The Comedy Store's main stage performing, "I Will Survive". The camera pans over the crowd and reveals Zmuda in the audience, hinting that maybe Kaufman's death was actually fake, and he is still alive somewhere. The film ends with a neon portrait of Kaufman among such comedy legends as the late Groucho Marx and Laurel and Hardy.