Covington is a village in 19th-century Pennsylvania that exists in isolation, surrounded by woods deemed perilous due to the monsters believed to dwell within. To maintain peace, an agreement was forged long ago between the village elders and the creatures: the villagers would avoid the woods, and in return, the monsters would keep their distance from the village itself. The eerie presence of these creatures is indicated by haunting howls emanating from the forest and skinned animals occasionally found discarded in the village. The villagers indoctrinate their children to view the monsters as dangerous flesh-eaters endowed with formidable claws.
The boundary between the village and the jungle is marked clearly and illuminated at night to deter anyone from crossing. Despite numerous unsettling events, the elders maintain that no one has breached these boundaries. The villagers don mustard-colored cloaks to signal safety, whereas the monsters are said to adorn cloaks of bright red.
Amidst this, elder August Nicholson (Brendan Gleeson) is left mourning the loss of his son to an incurable ailment. Young Lucius Hunt (Joaquin Phoenix) seeks permission to venture into "towns" to retrieve medicine for Noah Percy (Adrien Brody), who struggles with mental health issues. However, the elders adamantly refuse his request, resolutely adhering to the village's rules. The villagers lead a simplistic existence devoid of any modern technology.
Kitty Walker (Judy Greer) wishes to marry Lucius, but he is closer to her blind sister, Ivy (Bryce Dallas Howard). Ivy claims she senses a distinct 'color' around Lucius, suggesting an emotional bond between them since childhood. Meanwhile, Noah picks berries that can only be found in the woods, which leads Lucius to believe that if the creatures have not harmed Noah due to his innocence, he too is safe.
Lucius's mother, Alice (Sigourney Weaver), who also serves as an elder, urges him to refrain from entering the woods. However, Lucius insists on uncovering the secrets held in the black box possessed by each elder, a box representing the dark history from their lives before becoming elders.
When Lucius does manage to patrol the woods, he ultimately returns, only to find that one night the monsters start to infiltrate the village. In a brave act, he saves Ivy from an assault. Although he confesses his error during a town hall meeting, the elders graciously forgive him, despite the escalating disturbances from the monsters, who remain destructive but not deadly. The villagers appease the creatures by leaving offerings of meat at the jungle's edge for their consumption.
One by one, the villagers recount their encounters with the monsters to the elders, who aim to discern truth from exaggeration. Just as Lucius and Ivy decide to unite in marriage, calamity strikes when Noah, in a fit of rage, stabs Lucius and is subsequently confined.
Ivy, determined to find a cure for Lucius, decides to take the perilous journey to the nearby towns. Her father, Edwards (William Hurt), supports her decision against the elders' wishes, reminding them of the oaths they have taken to remain detached from the outside world. Before she departs, Edwards shares the tragic history behind his own father's murder, expressing his belief that had his father left the village, he might still be alive.
Revealing the shocking truth, Edwards confesses that the so-called monsters are actually the elders in disguise, perpetuating the myth to ensure younger villagers do not stray from their safety. The supposed monstrous carcasses found in the village were placed there by the elders themselves. Edwards believes that by denying Ivy the opportunity to save Lucius, the elders would merely subject her to the same grief they once escaped.
Empowered by these revelations, Edwards provides Ivy with funds for the medicine, explaining to the other elders that they will not live forever and that Lucius and Ivy should carry on their legacy. Ivy sets off on her journey, initially accompanied by two escorts who quickly abandon her at the first sign of peril, arguing that they would prioritize their own safety over protecting a blind girl.
During her treacherous path, Ivy faces moments of fright, especially when attacked by a creature she realizes is merely Noah in disguise. In a clever move, she tricks him into falling into a ditch, leading to his demise. Ivy soon encounters a formidable wall, which leads her into a shocking realization about the nature of Covington. As she climbs over, the elders are seen opening their own black boxes, filled with mementos from their past lives.
It becomes increasingly clear that the village exists not in the distant 19th century, but in contemporary times. Covington was established by Edward Walker as a refuge for those reeling from the grief of violent losses. To shield its inhabitants from future tragedies, a wall encircles the village within the Walker Wildlife Preserve, ensuring no modern disruptions penetrate their facade of antiquity.
Upon reaching the outside world, Ivy is taken aback by sounds and vehicles she has never encountered, yet she is met with kindness from strangers who assist her in obtaining the much-needed medicines. With her newfound allies, she secures the cure and successfully climbs back over the wall.
Upon Ivy’s return, the elders, now aware that she has vanquished a monster (Noah), gather around Lucius's bedside. Edward offers condolences to Noah’s grieving parents, reassuring them that his death will help sustain the illusion that terrifying creatures continue to lurk in the woods.
