Computer programmer Thomas A. Anderson leads a secret life as a hacker under the alias “Neo”, and wishes to learn the answer to the question, “What is the Matrix?” Cryptic messages appearing on his computer monitor and encounters with three sinister agents lead him to a group led by the mysterious Morpheus, a man who offers him the chance to learn the truth about the Matrix. Neo accepts by swallowing an offered red pill, and subsequently finds himself naked in a liquid-filled pod, his body connected by wires to a vast mechanical tower covered with identical pods. The connections are severed, and he is rescued by Morpheus and taken aboard his hovercraft, the Nebuchadnezzar. Neo's neglected physical body is restored, and Morpheus explains the situation.

Morpheus informs Neo that the year is not 1999, but estimated to be closer to 2199, and that humanity is fighting a war against intelligent machines created in the early 21st century. The sky is covered by thick black clouds created by the humans in an attempt to cut off the machines' supply of solar power. The machines responded by using human beings as their energy source in conjunction with nuclear fusion, later growing countless people in pods and harvesting their bioelectrical energy and body heat. The world which Neo has inhabited since birth is the Matrix, an illusory simulated reality construct of the world as it was in 1999 developed by the machines to keep the human population docile in their captivity. Morpheus and his crew are a group of free humans who “unplug” others from the Matrix and recruit them to their resistance against the machines. Within the Matrix, they are able to use their understanding of its nature to bend the laws of physics within the simulation, giving them superhuman abilities. Morpheus believes that Neo is “the One”, a man prophesied to end the war through his limitless control over the Matrix.

Neo is trained to become a member of the group. A socket in the back of Neo's skull, formerly used to connect him to the Matrix, allows knowledge to be uploaded directly into his mind. In this way, he learns numerous martial arts disciplines, and demonstrates his kung fu skills by sparring with Morpheus in a virtual reality “construct” environment similar to the Matrix, impressing the crew with his speed. Further training introduces Neo to the key dangers in the Matrix itself. Injuries suffered there are reflected in the real world; if he is killed in the Matrix, his physical body will also die. He is warned of the presence of Agents, fast and powerful sentient computer programs with the ability to take over the virtual body of anyone still directly connected to the Matrix, whose purpose is to seek out and eliminate any threats to the simulation. Morpheus is confident that once Neo fully understands his own abilities as “the One”, they will be no match for him.

The group enters the Matrix and takes Neo to meet the Oracle, the woman who has predicted the eventual emergence of the One. She tells Neo that he has “the gift” of manipulating the Matrix, but that he is waiting for something, possibly his next life. From her comments, Neo deduces that he is not the One. She adds that Morpheus believes in Neo so blindly that he will sacrifice his life to save him. Returning to the hacked telephone line which serves as a safe “exit” from the Matrix, the group is ambushed by Agents and SWAT teams. Morpheus allows himself to be captured so that Neo and the others can escape. They later learn that they were betrayed by the crew-member Cypher, who preferred his old life in ignorance of the real world's hardships and therefore made a deal with the Agents to give them Morpheus in exchange for a permanent return to the Matrix. Cypher is defeated but not before his betrayal leads to the deaths of all crew-members except Neo, Trinity, Tank, and Morpheus, who is imprisoned in a government building within the Matrix. The Agents attempt to gain information from him regarding access codes to the mainframe of Zion, the unplugged humans’ subterranean refuge in the real world. Neo and Trinity return to the Matrix and storm the building to rescue their leader. Neo becomes more confident and familiar with manipulating the Matrix, ultimately dodging bullets fired at him by an Agent. Morpheus and Trinity use a subway station telephone to exit the Matrix, but before Neo can leave, he is ambushed by Agent Smith. He stands his ground and eventually defeats Smith, but flees when the Agent possesses another body.