Sergeant Neil Howie of the West Highland Police receives an anonymous letter requesting his presence on Summerisle, a remote Hebridean island famed for its popular and unusually abundant fruit produce. A young girl named Rowan Morrison has been missing for a number of months and her mother is being uncooperative with enquiries. Due to the island's isolation it is unlikely she could have left by herself, abduction is suspected.
Howie, a devout and celibate Christian, travels by seaplane to the island and is profoundly disturbed to find a society that worships the old pagan, Celtic gods of their ancestors. Couples copulate openly in the fields, children are taught in school of the phallic importance of the maypole, toads are placed in the mouth to cure whooping cough, and the island has no Christian ministers or priests. Its church and graveyards have long been deconsecrated and are now used for the idiosyncratic burial rituals of the locals, who believe in re-incarnation.
In the course of his investigation, Howie encounters difficulty in extracting information from the islanders, who claim never to have heard of Rowan, and whose own mother insists does not exist. Rooming at The Green Man Inn, where he is introduced to the beautiful young daughter of the landlord, Willow, Howie notices a series of photographs celebrating the island's annual harvests adorning the wall of the bar with each photograph featuring a young girl, the May Queen. The latest photograph is missing due to it being "broken". No negative exists.
After discovering a grave bearing Rowan Morrison's name in the cemetery, Howie's search eventually brings him into contact with the island's community leader, Laird and de facto figurehead Lord Summerisle, who explains to Howie the island's recent history and culture. Summerisle's grandfather, a distinguished Victorian scientist, developed several new strains of fruit that he believed could prosper in Scotland's climate given the proper conditions. Drawn to Summerisle's unique combination of fertile, volcanic soil and local waters heated by the Gulf Stream, he inculcated in the local populace a belief that the old gods were real and worshipping them by farming the new crop strains would deliver them from their meagre livelihood. The crops bore fruit and the island's Christian clergy were driven away, with the population now embracing pagan teachings wholesale. Enraged by Summerisle's glib comment that the Christian god is "dead", Howie demands permission to exhume Rowan's body, which Lord Summerisle subsequently grants, confident in the belief that such a deeply religious community as his is incapabale of murder. Howie's exhumation of the grave reveals only the body of a hare. He angrily confronts Summerisle once more, declaring that he believes that Rowan Morrison was murdered as part of a pagan sacrifice and that he intends to bring the full weight of the law upon the inhabitants of the island.
Breaking into the local chemist's shop, Howie discovers that a negative of last year's harvest photograph does in fact exist. It shows Rowan standing amidst a meagre, pathetic group of boxes, indicating that last year's harvest was a poor one and that the crops the island's only means of income had failed. Struck by his recollection of an offhand remark made by Lord Summerisle about appeasing the old gods "when necessary" and by research that indicates pagan societies offer up a human sacrifice in the event of crop failure, Howie deduces that Rowan is in fact still alive and that she is being kept hidden until she can be sacrificed as part of the May Day celebrations to ensure a plentiful harvest for the coming year.
Howie spends another night at the Inn where, in the room next to his, Willow sings to him and openly attempts to seduce him. The next morning, discovering that his plane has been sabotaged and is unable to take off, Howie elects to search the island for Rowan himself ahead of the impending May Day parade. Howie ties up the innkeeper and assumes his place as Punch, a principal character of the May Day festival. Disguised, he joins the procession of islanders as they cavort through the town and perform harmless sacrifices to the various lesser gods. Then Lord Summerisle announces that a grimmer sacrifice awaits them, and Rowan is finally revealed, tied to a post. Howie cuts her free and flees through a cave but after a brief chase emerges at another entrance on a precipice where Summerisle and his followers stand waiting for them. Howie is shocked to see Rowan merrily embrace her captors and then notices that he is being surrounded.
Lord Summerisle explains to Howie that, after painstaking research on their behalf, he specifically was lured to Summerisle by the islanders, who have been successful in a conspiracy to lead him to believe that a missing girl was being held captive against her will, and confirms to him that last year's harvest failed disastrously, threatening the inhabitants with a return to their previously desperate existence and that they have no intention of allowing that to happen. Their religion calls for a sacrifice to be made to the Sun god as Lord Summerisle explains that, "animals are fine, but their acceptibility is limited. A young child is even better, but not nearly as effective as the right kind of adult." Howie's devout Christian lifestyle and his livelihood as a policeman mean that he meets the outstanding criteria for a human that is to be sacrificed to appease the gods he has come of his own free will, with the power of a king and he is a virgin. In spite of his protestations that the crops failed because fruit was not meant to grow on these islands and that next year the sacrifice of Lord Summerisle himself will be called for, Howie is stripped bare, then dressed in ceremonial robes and led to the summit of a cliff with his hands tied. He is horrified to find a giant, hollow wicker man statue which he is then locked inside. The statue is soon set afire. As the islanders surround the burning wicker man and sing the Middle English folk-song "Sumer Is Icumen In", a terrified Howie curses them and recites Psalm 23 as he prays to God for accession to Heaven. The film ends as the burning head of the wicker man falls from its shoulders, as the sun sets in a blood-red sky.