In 1891, Gwen Conliffe (Emily Blunt) writes to Lawrence Talbot (Benicio del Toro) to tell him that his brother, Ben, has disappeared. Lawrence, a renowned Shakespearean actor, is touring London and races to the family's estate in Blackmoor. He has been estranged from his family for many years, since his father, Sir John Talbot (Anthony Hopkins) sent him to an insane asylum after witnessing his mother's mysterious death. When Lawrence arrives, Talbot Hall is in disrepair. John tells him that Ben's mauled body had been found the day before.
Lawrence goes into town to see the body, which is kept at the local slaughterhouse. The butcher gives Ben's personal effects to Lawrence. Later, in the local tavern, Lawrence overhears the locals debate about who was responsible. Many blame a band of gypsies who are camped outside of town. Another claims that several decades earlier a similar murder had happened and that his father suspected a werewolf. Among Ben's belongings was a medallion that had been purchased from the gypsies.
After Gwen leaves for London, Lawrence goes to the gypsy camp on the night of a full moon. Maleva (Geraldine Chaplin) tells him that something evil had befallen his brother. The local townspeople descend on the camp to force them to turn over a dancing bear that might have been the killer. But a super-humanly strong wolf-like creature descends on the camp, slaughtering many people. Lawrence sees a young boy run into the woods. Intending to rescue him, Lawrence follows but is attacked by the creature, who bites him on the shoulder before being chased off by the armed townspeople. Maleva sutures his wounds. Her daughter says Lawrence should be killed, but Maleva refuses, saying he is still a man. Only a loved one can kill him.
Gwen returns to Talbot Hall to nurse Lawrence back to health. He has several fearful dreams but after a few weeks appears to have completely healed. John's faithful manservant, Singh (Art Malik) shows Lawrence the silver bullets he has and implies that something monstrous is on the loose in Blackmoor. Inspector Abberline (Hugo Weaving) arrives from London to investigate the recent murders. He suspects Lawrence because of his past mental issues and masterful portrayals of mentally ill protagonists like Hamlet and Macbeth. Worried about what might happen, Lawrence sends Gwen away again. He then follows to John to Lady Talbot's crypt. He finds his father in the catacombs beneath the crypt, in a shrine to the dead mother -- a shrine that includes a chair specially fitted with restraints. John tells Lawrence that he has been dead for years, then locks himself in the room alone. As Lawrence tries to leave, he turns into the Wolf Man. Rampaging through the woods, he kills several townspeople who had created a trap in hopes of catching the monster. The next day, John leads Abberline and the local police to where a dazed, bloody human Lawrence is hiding.
Lawrence is taken to the same asylum in London where he was incarcerated as a child. Dr. Hoenneger (Anthony Sher) subjects him to ice-water and electrotherapy treatments. John visits Lawrence to explain the curse hanging over the family. Many years before, John had been hunting in India. Intrigued by reports of an unusual predator living in a remote cave, John traveled to a remote area. In the cave, he was bitten by a feral boy and infected with lycanthropy. Lawrence realizes that he had seen his father as a werewolf kill their mother. John had relied on Singh to imprison him during full moons. John escaped the month before and killed Ben and attacked the gypsy camp. Now invigorated by the power of being a werewolf, John has no intention of restraining his power anymore. He leaves Lawrence in the asylum.
Dr. Hoenneger takes Lawrence to an observation room to present him to his colleagues as an interesting test case. As the full moon streams through the window, Lawrence transforms into the Wolf Man in front of the doctors. He kills Dr. Hoenneger and escapes into the night. Abberline, who had been attending the demonstration, pursues him, shooting at him as he races along the rooftops. The Wolf Man kills people in a trolley before disappearing into the night. The next day a human Lawrence visits Gwen at her antique shop. They realize they have fallen in love. Abberline arrives and searches the shop. But Lawrence has already escaped and begun the long walk back to Blackmoor.
Gwen studies lycanthropy and tracks down Maleva to ask her help. Maleva confirms that Lawrence cannot be cured and asks God to help Gwen do what she must. Abberline tracks Lawrence to Blackmoor, this time armed with silver bullets. Gwen makes her way there as well.
Lawrence arrives at Talbot Hall and finds Singh's mauled body hanging in the foyer. He loads a gun with Singh's silver bullets and tracks John through the house. He finds John in the study. The silver bullets are duds and John beats Lawrence. When the full moon rises, they both transform into werewolves and fight to death. In their struggle, the room catches on fire. The Wolf Man kicks John into the fire, burning him alive, then decapitates him. Gwen arrives hoping to save Lawrence. When the Wolf Man attacks her, Abberline bursts in and shoots at him. As Gwen flees with Abberline's revolver, the Wolf Man bites Abberline but chases Gwen rather than finish him off.
The Wolf Man traps Gwen above a waterfall. She lays down the gun and pleads with the man still inside the beast. Lawrence's consciousness faintly returns and the Wolf Man hesitates. When he is distracted by the sounds of a posse coming to kill him, Gwen retrieves the revolver and shoots him with a silver bullet. As he lays dying, Lawrence reverts to human form and thanks Gwen for doing what needed to be done. The wounded Abberline and the posse arrive as Lawrence dies, Gwen looks at Abberline who observes his bite wound and looks up at the full moon knowing full well what is to become of him. As Talbot Hall burns, a howl is heard in the distance (implied to be Abberline who is cursed as a werewolf now).