The parallel city of Monstropolis is inhabited entirely by monsters, and is powered by electricity which is generated from the screams of human children. At the Monsters, Inc. factory, skilled individuals called “scarers” access the human world through closet doors in children’s bedrooms, to scare the children so they will scream. It is considered dangerous work, as human children are believed to be highly toxic to monsters.
However, energy production is falling because children are becoming more difficult to scare. The company’s chairman, Henry J. Waternoose, is determined to find a solution. James P. “Sulley” Sullivan is the organization’s top scarer, but he is engaged in a fierce rivalry with a sinister chameleon-like monster, Randall Boggs.
One day, Sulley discovers that Randall left a door activated on the scarefloor, and a small girl has entered the factory. After failing to put her back, Sulley takes her home. His best friend Mike Wazowski is on a date with his girlfriend Celia, and chaos erupts when the child is discovered to be there. Sulley and Mike escape the Child Detection Agency (CDA) and gradually discover that the little girl is not toxic after all. Sulley grows attached to her and names her “Boo.” They smuggle her into the factory in an attempt to send her home. Randall discovers that Boo is there and tries to kidnap her, but instead he kidnaps Mike.
Randall reveals that he has built a terrifying machine (“The Scream Extractor”) which can be used to extract all possible screams out of captured human children, thus solving the company’s production problems. Randall straps Mike to the machine, but Sulley unplugs it and reports Randall to Waternoose. However, Waternoose is secretly in league with Randall, and exiles Mike and Sulley to the Himalayas. The two are taken in by a Yeti, who tells them about a nearby village which can enable them to return to the factory. Sulley heads out, but a frustrated Mike refuses to follow.
Randall straps Boo to the Scream Extractor, but Sulley saves her by destroying the machine. Waternoose sends Randall to get Sulley. Mike returns to apologize, but thinks Sulley is ignoring him because an invisible Randall is attacking Sulley. Sully manages to temporarily incapacitate Randall, and escape with Mike and Boo.
Randall pursues them as they speed through the factory, riding on the doors that are heading into a giant vault where millions of doors are stored. Boo’s laughter activates the doors, which allows the pursuit to pass in and out of the human world. Randall attempts to kill Sulley, but Boo attacks him. Sulley and Mike trap Randall in the human world, inside a trailer, where the residents, who mistake him for an alligator, beat him with a shovel.
Sulley and Mike find Boo’s door, but Waternoose sends it back to the Scarefloor. While Mike distracts the CDA, Sully confronts Waternoose, who reveals that he is working with Randall to kidnap kids and use the Scream Extractor in order to keep the company from going out of business. The CDA, having recorded this confession, arrest him. The CDA’s leader is revealed to be Roz, who was working undercover for two-and-a-half years, trying to expose Waternoose’s plot. Sulley and Mike say goodbye to Boo, and return her to her home. Then, on Roz’s orders, Boo’s door is shredded to prevent any more escapes.
Sulley comes up with a way to end the company’s production problems. The monsters now enter children’s bedrooms to make them laugh, because laughter is ten times more powerful than screams.
Mike takes Sulley aside, revealing he has rebuilt Boo’s door, and only needs one more piece, which Sulley took as a memento. Sulley enters and happily reunites with Boo.