In an unidentified city a gangster, Eddie Black, and his henchmen, await the arrival of another gangster, Robert Durant. Durant has been encroaching on Black's territory and Black is seeking revenge. When Durant and his crew arrive, they're immediately searched for weapons and allowed to enter the warehouse. Black delivers his terms, which demand that Durant move out of his territory. Durant nods at one of his crew, Smiley, who grabs the fake leg of one of his comrades and begins shooting at Black's men with an Uzi hidden in the fake limb. Black's men are quickly defeated and killed, leaving Black himself alive. Durant gives Black his terms, cutting off one of his rival's fingers for each with a cigar cutter. (It is revealed later that Durant preserves the fingers of his enemies and keeps them as trophies.)
In a science lab Dr. Peyton Westlake experiments with artificial skin cells. However, all his attempts to create fake skin have failed; none of the samples he creates will remain stable after 99 minutes of exposure to light. Westlake's girlfriend, Julie Hastings, comes to his apartment later and brings a private memorandum from her office. The two share a romantic evening together.
Julie notices that the memo is connected to shady dealings of her boss, Louis Strack. When Strack warns Julie to stop her investigation of the alleged connection, she refuses. Later, she leaves Westlake's lab just as he suggests they should get married. Julie is unsure of marrying him. Westlake returns to his scientific work and, as the timer closes in on 99 minutes, the lights go out in the lab. Westlake's assistant, Yakatito, reports that the skin cells are stable past 100 minutes. Westlake says that the key to the experiment has something to do with light. As Westlake goes to make a phone call, Durant appears and has his goons begin beating Westlake. Durant demands the memo Julie had found that would implicate her boss, which she had left at the apartment. Westlake tells them he knows nothing about it. Durant has Yakatito shot and his goons beat the doctor more, dipping him in a vat of boiling fluid that scars his face. He also burns his hands on the vat's electrodes. Durant's crew finds the memo and leave Westlake for dead; Durant himself sets a fuse to ignite flammable gas. Westlake's lab explodes, launching him through the roof and he falls, on fire, into the river.
Westlake is found by a medical team that takes him to a neurological clinic. Assumed to be a homeless person, they perform surgery to sever the nerves that transmit pain impulses, which relieves him from the pain from the damage to his hands and face. However, there is a serious side effect; Westlake's emotions, particularly anger and rage, become amplified. He also becomes physically stronger as well. Westlake escapes from the institution and begins to live on the streets. Donning a raincoat, he finds Julie as she leaves her apartment and tries to talk to her, however, his burnt face prevents him from doing so. Julie doesn't recognize him and rejects him as a homeless man. Westlake returns to his destroyed lab and salvages as much of his equipment as he can. Setting himself up in an abandoned factory, he continues his work on the artificial skin and plots his revenge against Durant and his thugs. He also uses his computer system to make a mask of his own face, however, the process will take several weeks.
Westlake first shadows Durant's man, Rick. He kidnaps him and takes him below street level, coercing him into revealing Durant's name. Westlake then thrusts Rick up through a manhole where he's crushed under the wheels of a semi-truck. Westlake then uses his technology to reproduce the faces of Durant's thugs. He first imitates a man named Paulie by drugging him in his sleep and taking his place at a money drop off, stealing the cash in a briefcase. When Durant finds Paulie in his apartment, he finds that Paulie has two tickets (planted by Westlake) for Rio, one for him and one for Rick. Infuriated, Durant has Paulie thrown out the window to his death. Westlake, sitting nearby, and still wearing Paulie's false face, is a witness. He runs off when the skin begins to decompose and a woman screams.
Every attempt by Westlake to perfect his skin formula fails. However, his computer completes the necessary reconstruction of his own face and he meets with Julie, finding her at his grave. The two begin to date again, with Westlake telling her that he'd been in a specialized institution in a coma. One day, he takes her to a carnival where he's cheated out of a prize by one of the staff. Enraged, he breaks the man's fingers and his false face begins to decompose. He runs back to his refuge, where Julie finds his work. Westlake refuses to come out of his hiding place.
Westlake next turns his attention to Durant. Donning Durant's face, he holds up a convenience store, making sure to identify himself on the security camera. The police arrest Durant and while he's incarcerated, Westlake goes with his thugs to a meeting with a Chinese gangster, Hung Fat. The man owes Durant a hefty sum of money but refuses to pay him until Westlake holds a match to his arm, burning himself severely. Fat coughs up the money immediately. Meanwhile, Durant has posted bail and rushes to the meeting site in Chinatown. When he tries to enter the building through a revolving door, he runs straight into Westlake. In the confusion, Westlake knocks Durant to the ground and, while yelling at one of Durant's goons, his false skin begins to fail. He bolts from the scene and escapes while Durant and his goons shoot at him.
Julie meets with Strack again, who tells her that her life is in danger because of her association with Westlake. Julie leaves and Strack calls in Durant himself, who works for the tycoon. Strack orders Durant to find and kill Westlake. Julie will be the bait when she next goes to his hideout. When Julie does, Durant's gang kidnaps her and chases Westlake through the factory. He dispatches several of them wearing his disguises. One man has the misfortune of being shot by his friend while gagged and wearing a false face of Westlake. Westlake next turns his attention to Durant, who is riding in a helicopter. Westlake grabs onto a hook at the end of a long cable and is flown through the city. Flying over a highway, Durant has him lowered into traffic. Westlake lands on the top of a trailer and hooks the chopper to it, which is pulled into a bridge and destroyed when the truck goes under it.
Westlake once again imitates Durant and meets with him at one of Strack's construction sites. Julie has been brought along. Strack tricks Westlake into revealing his identity and snatches the Durant mask off his head. Westlake fights with Strack's thugs, one of whom drops Julie onto a bundle of cables, where she dangles precariously. Westlake defeats all of Strack's men and uses a cable and hook to save Julie. When Strack corners him, he uses a bolt gun to pin Westlake's hand to a girder. As he moves in to kill him, Westlake rips his hand from the bolt and eventually throws Strack off the building to his death. In the elevator down, Westlake tells Julie of his shame at being disfigured and how he can never be with her again. He dons a final disguise (Sam Raimi regular, Bruce Campbell, in a cameo) and walks off, a voiceover saying he'll fight crime as Darkman.