Professor Grady Tripp, portrayed by Michael Douglas, is a struggling novelist and creative writing instructor at a university in Pittsburgh, where the film was primarily filmed around Carnegie Mellon University. His life is complicated; he is entangled in an affair with the university's chancellor, Sara Gaskell, while also grappling with the recent departure of his third wife, Emily. To make matters worse, Grady has yet to replicate the success of his first novel, which has left him in the throes of writing a second that spans over two and a half thousand pages but remains unfinished. To cope with his frustrations, he often indulges in smoking marijuana.
Among his students are two talented writers, Hannah Green and James Leer, the latter played by Tobey Maguire. While Hannah, who shares a living space with Grady, harbors feelings for him, Grady remains oblivious to her affections. Meanwhile, James is an enigmatic character, quiet yet deeply passionate about writing, covering up his intensity behind a facade.
During an event at the Gaskells' home, Sara announces her pregnancy, which puts Grady in a precarious position as he tries to juggle his relationships. This night takes a dark turn when Grady encounters James outside, who has a gun — initially claimed to be a replica but ultimately turns out to be real. In a shocking moment, James shoots the Gaskells' dog, and subsequently steals an expensive Marilyn Monroe collectible from their house. Caught between these troubled waters, Grady finds it impossible to divulge this to Sara, who is pressuring him to make a choice between her and Emily. This leads him to keep the dead dog in his car's trunk for the remainder of the weekend.
The relationship between Grady and James deepens as the younger man becomes a shadow in his life, but Grady grows increasingly suspicious of James's narratives about his past, recognizing they may be fabricated to gain his sympathy.
Meanwhile, Grady's editor, Terry Crabtree (played by Robert Downey Jr.), visits under the guise of attending a literary festival but is really there to assess whether Grady has produced a manuscript worth publishing. He arrives with a flamboyant companion, Antonia Sloviak, and their escapades intertwine with the chaotic happenings at the Gaskells' party. After an unexpected night of flirtation with James, Terry's priorities shift.
As Grady seeks clarity amidst chaos, he confides in Walter Gaskell, Sara's husband, revealing his feelings for Sara while Walter deduces James's involvement with the stolen jacket. The plot thickens when police arrive to hold James accountable, and Grady discovers his car — and the precious manuscript contained within — has mysteriously vanished. After tracing the vehicle, he faces the loss of his work when the wind scatters most of it, yet he discovers a way to rectify past mistakes by allowing Walter's wife, Oola, to keep the jacket and sharing with her its sentimental story.
In a twist of fate, Terry convinces Walter to refrain from pressing charges against James, agreeing to publish his autobiographical account titled The Last American Marriage. The film concludes with a reflection on the characters' futures: Hannah advances in her career as a magazine editor, James leaves to pursue his writing in New York with Terry, and Grady, embracing the future, adroitly finishes his manuscript on a computer before finally taking a moment to watch Sara and their child—clicking "Save" on his new journey.
