After the unexpected passing of her mother, 16-year-old Baby Doll (Emily Browning) finds herself in grave danger when her avaricious stepfather seeks to eliminate her for a share of the inheritance. In a tragic twist of fate, she attempts to kill him but accidentally ends up taking her younger sister's life instead. Her stepfather subsequently deems Baby Doll insane and has her confined to the Lennox Institution.
At the facility, Dr. Vera Gorski ([Carla Gugino]) serves as Baby Doll's therapist. Overhearing her stepfather discussing a plot with the asylum's director, Dr. Blue Jones ([Oscar Isaac]), to forge Gorski's signature for a lobotomy approval in five days, Baby Doll realizes her situation is dire. Encouraged by Dr. Gorski's assertion that they can harness their inner strength, Baby Doll's mind transforms the institution into a fantastical dance hall, with the corrupted Blue as the owner and her stepfather as a malevolent priest. Alongside her is another inmate, Rocket ([Jena Malone]), who quickly connects with Baby Doll despite her older sister, Sweet Pea ([Abbie Cornish]), initially resisting the friendship. A close bond is forged when Baby Doll saves Rocket from an assault by the institution's cook.
During a rehearsal, when Dr. Gorski prompts Baby Doll to dance, she enters a trance and finds herself in a Japanese dojo, where an old man ([Scott Glenn]) informs her of the imminent danger she faces from the High-Roller ([Jon Hamm]). To survive, she must secure five mystical objects: a map, fire, a knife, a key, and a fifth object that remains a mystery. After battling three formidable samurai, Baby Doll impresses the other girls with her prowess, although Sweet Pea remains skeptical.
The girls devise a plan to obtain the map hidden in Blue's office. While Sweet Pea lures Blue to watch Baby Doll dance, she uses a copier to duplicate the facility's layout. Meanwhile, as Baby Doll dances, she journeys to a World War I setting where they're tasked with obtaining the map from reanimated German soldiers. The girls work together, overcoming surreal challenges and retrieving the map, which deepens Baby Doll's role as a leader within her group.
As Blue plots to reveal Baby Doll's capabilities to the Mayor, the girls cunningly maneuver to gather the necessary items. They enter a medieval landscape where Baby Doll, with Sweet Pea and Rocket, must confront a baby dragon to secure the stones required to create fire. Their journey culminates in fierce battles and narrow escapes, showcasing their bravery and teamwork.
However, tragedy strikes when Rocket sacrifices herself to save Baby Doll and Sweet Pea during a dangerous mission involving a bomb on a speeding train, reflecting the grave reality of their situation back in the facility. The cook inadvertently kills Rocket, leading to Sweet Pea's confinement as Blue discovers their plots.
As tensions peak, Baby Doll emerges victorious after a confrontation with Blue, reclaiming the items they need for their escape. In a moment of self-realization, Baby Doll understands that her ultimate freedom is tied to her friends' safety, leading her to a heartbreaking choice. She orchestrates a diversion, allowing Sweet Pea to escape at the cost of her own fate.
In a climactic twist, Baby Doll's perceived captivity concludes with her confronting the High-Roller, realigning her reality and desires. She ultimately endures a lobotomy, but the twist of fate reveals that her sacrifices lead to the exposure of corruption within the institution, showcasing her bravery and selflessness.
In the epilogue, Sweet Pea prepares to leave her past behind, embarking on a journey towards freedom. As she boards a bus, the driver—hinting at the old man from Baby Doll’s dreams—ensures her safe passage, suggesting her journey to a brighter future. The imagery of a sign for the Paradise Diner symbolizes the hope for a life renewed after a harrowing struggle, marking the end of one chapter and the beginning of another.
