The malevolent queen, Bavmorda (Jean Marsh), utilizes dark sorcery to dominate the land and subjugate its inhabitants. She becomes increasingly alarmed at the prophecy surrounding the birth of a special child marked by destiny, which foretells her demise. In her fear, Bavmorda captures all expectant mothers, leading to the birth of the prophesied baby girl, whose life she aims to extinguish. However, the midwife escapes with the infant, placing her on a raft that carries the child downstream. This blessed baby washes ashore near a community of diminutive folk known as the Nelwyns.
Willow Ufgood (Warwick Davis), an earnest farmer and budding magician, stumbles upon the child and is tasked by the town council with the mission of returning her to the realm of the "large people," also referred to as Daikini. Paired with his loyal friend Meegosh (David Steinberg), they unwittingly place their trust in a rogue warrior named Madmartigan (Val Kilmer), the first Daikini they encounter.
However, their journey takes a wild turn when they are ambushed by a band of Brownies who have snatched the baby from Madmartigan. The fairy queen of the forest, Cherlindrea (Maria Holvoe), informs Willow of his crucial role in safeguarding the baby, named Elora Danan. Empowered by Cherlindrea's gift of a magic wand, Willow is directed to seek the wisdom of the sorceress, Fin Raziel (Patricia Hayes). Accompanying him are two helpful brownies, Franjean (Rick Overton) and Rool (Kevin Pollak).
During their adventure, they encounter Madmartigan again, who lends his support against the relentless advances of Sorsha (Joanne Whalley), Bavmorda's fierce daughter. Eventually, Willow and his companions meet Raziel, only to be puzzled that she has been transformed into a rodent by Bavmorda's evil sorcery.
Sorsha manages to capture Willow and his crew, forcing them into a long and treacherous journey towards Nockmaar castle, Bavmorda's fortress. In a bid to restore Raziel to her human form, Willow attempts using his magic but finds himself unsuccessful. Meanwhile, Madmartigan and the Brownies manage a daring escape, during which Madmartigan, under the spell of the Brownies' love potion, becomes infatuated with Sorsha.
The group ultimately manages to flee Sorsha's grasp, commandeering horses for a hasty escape. They soon discover the castle of Tir Asleen, the sanctuary promised by Cherlindrea; yet, it too is ensnared by Bavmorda's spell, leaving its residents encased in ice. With unwavering courage, Madmartigan prepares for Sorsha's impending assault while Willow makes another attempt to transform Raziel back into her human form, again to no avail.
When Sorsha and her legion launch their attack, an unexpected ally arrives—the Army of Galladoorn, led by Madmartigan's old comrade, Airk Thaughbaer (Gavan O'Herlihy). In the chaos of battle, Sorsha finds herself falling for Madmartigan, causing her to switch allegiances. However, Nockmaar's General Kael (Pat Roach) captures Elora and successfully brings her back to Nockmaar.
With the help of Madmartigan, Sorsha, the resourceful Brownies, and the now-goat-formed Raziel, they prepare to storm Nockmaar castle in a desperate bid to rescue Elora. In a heroic moment, Willow finally succeeds in restoring Raziel to her human form, who then casts a protective spell over their camp, shielding them from Bavmorda's sinister powers. As dawn breaks, they launch their assault on Nockmaar.
In a climactic showdown, Willow manages to save Elora just in time from Bavmorda's malevolent ritual, resulting in the queen’s own magic contributing to her destruction. With the victory secured, Willow entrusts the baby into the loving care of Madmartigan and Sorsha. Ultimately, he returns home to his family, carrying a parting gift from Raziel: a book filled with enchanting spells to study.
