The movie opens with an infomercial for Globo Gym America Corp. We are introduced to White Goodman (Ben Stiller) - who talks about how Globo Gym is a beacon of human physical fitnes extremes, and then he is talking about how he's the company's first customer and the creator of the Globo Gym lifestyle. Then it's revealed that Peter La Fluer (Vince Vaughn) is watching the infomercial on his TV from his house. Peter is the owner and operator of Average Joe's Gymnasium. He wakes up and begins getting ready for another day at Average Joe's Gymnasium.
His car barely makes it to the building where Average Joe's is, and it's being pushed by some of the people who make up the membership of the gym. We are then introduced to the members of the gym - including former airport employee Dwight (Chris Williams), teenage cheerleader wannabe Justin (Justin Long), obscure sports fan Gordon (Stephen Root), and Steve The Pirate (Alan Tudyk), and then it's learned that Peter hasn't collected membership fees in several months. Justin tells Peter about his humiliation competing in his high school's cheerleading auditions. And then there's Owen who tells Peter about his dating troubles. And then Peter reassures Owen that there's somebody out there for everybody, and in the rare circumstance, there's two somebodies for everybody, which Peter calls the jackpot. Peter then enters his office where he's being greeted by an attractive auditor named Kate Veatch (Christine Taylor), who's there to sort out Average Joe's financial woes (but was secretly hired by White Goodman to gut Average Joe's of all remaining assets).
As Peter and Kate get acquainted, Kate informs them that his gym is being taken over by White Goodman, the owner and operator of Globo Gym America Corp. Peter goes over to Globo Gym to meet White, who appears more hostile than he seems on television. White informs Peter that he's $50K in the hole and that he plans on bulldozing Average Joe's and turning the place into a parking lot for his membership. It's then learned that White has an extremely bizarre lust for junk food and employes some really unusual methods for helping him ignore the temptation.
Back at Average Joe's, Peter informs the members about the gym's financial difficulties and has a go round Q&A session to figure out the best course of action to take. Owen suggests that they hold a car wash. Peter agrees to do so, but unfortunately bad timing and no planning means that they're out matched by a group of very attractive women in bikinis who happen to be holding a car wash across the street. The only customer they have successfully managed to attract is a creepy guy with a monster truck and an angry bull dog who keeps paying Justin to wash his car.
The car wash was a failure and actually wound up costing Average Joe's some money, in addition to the $50K in the hole that they are already in. Peter decides that they've already been defeated even though they haven't done anything to make the money that they're required. Member Gordon Pibb - who's a fan of obscure sports and reads the magazine Obscure Sports Quarterly, decides that they've got a shot at the $50K by playing Dodgeball. Peter agrees, and Justin finds the training tape that they need. The tape is hosted by the American Dodgeball Association Of America (ADAA) and features legend Patches O'Houlihan explaining the rules of Dodgeball.
After watching the video and a couple of practice rounds, they feel they are ready for the tournament. Unfortunately they're paired with Girl Scout Troop #417, who humiliates them after a very one-sided game and they lose. But Average Joe's is saved when one of the members of Troop #417 tests positive for a number of performance enhancing steroids and a low grade beaver tranquilizer. That means that Average Joe's is qualified for the Las Vegas open.
That night, while celebrating their victory, they're confronted by White Goodman, who's announced that he's also formed his own Dodgeball team with some seriously competitive players including his fitness counsel Meshell Jones (Jamal Duff) and an extremely strong and lethal Romanian player - who Average Joe's member Owen is strangely attracted to. Gordon tells White that they failed to win a regional qualifying match, but White tells Gordon that he helped the ADAA president shed some unwanted poundage and was therefore owed a favor. White then humiliates them by knocking a tray full of Mexican food on them.
Going home, while in the parking lot, Peter is confronted by a strange man in a motorized wheelchair who tells him the regional qualifying game between Average Joe's and Troop #417 was the absolute worst display of Dodgeball that he's seen in over 40 years. The strange man then reveals himself to be none other than ADAA legend Patches O'Houlihan (Rip Torn). He agrees to become their new coach and begins training them under a variety of unusual methods including throwing wrenches and making them dodge traffic.
While practicing, White Goodman presents them with a cardboard cutout of himself with a hidden camera that records their every move. It's attached with 30 day trial memberships to Globo Gym, meant to be an insult. During a practice round, Kate picks up a ball and throws it, decapitating the cut out of Goodman. Impressed, Peter and White both try to woo Kate into joining their respective sides. Kate ultimately agrees to join Average Joe's because she finds White as creepy as they do, and she would want nothing more than to see him on the losing end of the final match.
It's now time for the Vegas open Dodgeball championships. It's held every year at the Las Vegas Learning Annex, and this year it's being broadcast on ESPN 8: The Ocho (motto: "If it's almost a sport, it's on The Ocho"). The announcers for the tournament are Cotton McKnight (Gary Cole) and Pepper Brooks (Jason Bateman). Average Joe's makes a rather bizarre first impression from the ADAA community when Owen throws out their old uniforms and has them replaced with new ones. Thanks to a shipping error, they're forced to play the first round in S&M garb, while the people who were supposed to receive the S&M garb accidentally receive the Average Joe's uniforms instead.
Average Joe's takes on a variety of teams - including the German Blitzkrieg, the Lumberjacks and inner city champions Skillz That Killz while the Globo Gym Purple Cobras take on their own various teams including the Japanese Kamikaze, the MilFs, and the Las Vegas Police Department. Average Joe's finds themselves in a pickle when they're on the last end in the semi finals facing The Cougars with Gordon as the sole remaining member of a four on one game. Patches instructs Gordon to get really mean. He does and eliminates the opposition without fail. Meanwhile, Globo Gym has absolutely no problem eliminating the opponents they face. That leaves the two teams without competition and they ultimately find themselves facing each other in the final round. After a well-earned victory celebration that clinches Joe's a spot in the final round, Patches and Peter decide to celebrate, and Patches gives Peter his workout towel, and invites him to his hotel room where he has some Vegas hookers waiting.
On the last day before the final round, the team separates. Patches is killed when a giant neon sign falls on his head. While mourning Patches, Peter goes crazy and tells Steve that he's not a real pirate, and Steve, while walking down the Vegas strip, decides that maybe Peter's right. Justin is met by his love interest - fellow high school cheerleader Amber, who's in town for the National Cheerleading Championship finals. Amber tells Justin that their team captain has suffered a horrendous accident, rendering him unable to compete, and that Justin is the only one in Vegas who knows their whole routine. Justin helps his high school team - the Donkeys - perform their routine with rousing success. Peter is confronted by White Goodman, who offers him a $100,000 bribe if Average Joe's forfeits.
Peter takes the bribe, and that day while at the airport, he's met by Lance Armstrong (Lance Armstrong), who tells Peter that he should never give up. Peter then has a change of heart and joins Average Joe's in the finals. Just as it looks like Average Joe's is four players short, Peter rejoins the group and he tells ADAA president William Shatner (William Shatner) that the team is here and ready to play. Shatner is ready to hand the trophy over to White, but thanks to an ADAA by law, if they get approval from two of the three judges, they can play the final match. Shatner then has the other judges confer and give their approval or disapproval. The final judge - Chuck Norris (Chuck Norris)- gives the thumbs up and allows them to play the finals.
After a rousing match, the only member left is Justin, who catches a ball, then Kate catches a ball, to allow Average Joe's to get the upper hand against Globo Gym. They finally eliminate everyone except for White - who's nearly thrown out of the game after hitting Kate, who's already been eliminated, bringing it down to White and Peter. White then eliminates Peter and effectively ends the game. But thanks to a technicality, White has accidentally stepped over the line and has caused a penalty against Globo Gym. That means that it goes into something unheard of in Dodgeball history - sudden death elimination.
Peter decides to blindfold himself with the towel that Patches had given him prior to Patches' death. The announcers comment that he's unable to see. He tells White that he looks awful fat in those pants, leaving White feeling insecure. The match resume, and White is intimidated by Peter. He throws the dodgeball first, and it passes by Peter. Peter throws the ball at White and eliminates him. That ends the game and makes Average Joe's champions.
But the victory is short lived as White tells Peter that he sold Average Joe's to him the night before, and while Peter can't argue with that, Peter informs him that he took the $100K that White had given him and bet it on Average Joe's to win, and with 50:1 odds, that nets him a profit of $5,000,000. He then tells White that he plans to take his advice that he had given Peter the night before and invest the money in something - and that something happens to be the controlling stake of Globo Gym. Globo Gym is a publicly traded company and there's nothing that White can do about it. White, now having been completely defeated, goes back to his overeating ways that he had before he founded Globo Gym, and starts stuffing the face with junk food as he's walking off the court. Kate's girlfriend returns from Guam and meets up with her during the victory celebration, and Peter has hit the proverbial dating jackpot in addition to hitting an actual jackpot. Steve returns having completely cut off his pirate dreads and gone with a more conservative look. He tells Peter that Peter was right about the fact that Steve should stop being a pirate, but then Peter wonders who he's going to split all this newly acquired "buried treasure" with. We see Average Joe's on the cover of Obscure Sports Quarterly, followed by a commercial for the new and improved Average Joe's.
The film ends with a morbidly obese White Goodman sitting on the couch surrounded by junk food, explaining why they're happy that Average Joe's won and Globo Gym lost, and the reason why is that Hollywood doesn't like anything that deviates from the norm - good guy wins, bad guy loses, and then blames Chuck Norris for his defeat. And then later during a post credits scene, he does the dance from the "Milkshake" video.