The film is set in 1940 during World War II just as Italy enters the war. Malena's husband, Nino Scordia, leaves to serve in the military. Malena feels sad and tries to cope with her loss, as the town she has just moved to tries to deal with this beautiful woman who gets the attention and lustful stares of all the local men, including the 12-year-old Renato. However, in spite of the villagers' gossip, she continues to be faithful to her husband. Renato becomes obsessed with Malena and starts fantasizing about her while masturbating.
The silent, distractingly beautiful outsider learns one day that her husband has been killed. Renato continues to watch as she suffers from loneliness and grief. Malena is shunned by the townspeople and the unattractive, jealous women of the Italian village, who begin to believe the worst about her, simply because of her beauty.
She visits her father, an almost deaf professor of Latin, regularly and helps him with his household chores. When a slanderous letter about her sexual morals reaches his hands, their relationship suffers a catastrophic blow. In the meanwhile, the war worsens. The village is bombed and Malena's father is killed.
She falls on hard times and eventually has no money. The wife of the local dentist takes her to court, but Malena is acquitted. The only man Malena does have an innocent romance with, an army officer, is sent away because of the trial.
Malena's poverty finally forces her to succumb to the greed and malice of the town and she becomes a prostitute, making the wives' fantasies about her a reality. When the German army comes to town, Malena gives herself to Germans as well. Renato sees her in the company of two German officers and faints.
His mother and the older ladies of the town think that he has been possessed by the devil and take him to church to exorcise the "demons." His father however understands that he is suffering from sexual hunger and takes him to a brothel; Renato has sex with one of the prostitutes while fantasizing that she is Malena.
When the war ends, the women of the village gather and, out of jealousy and hatred, publicly beat and humiliate Malena, who shortly after leaves for Messina. A few days later, Nino Scordia returns to town, to the shock of all the residents. He finds his house occupied by people displaced by the war. Renato tells him through an anonymous letter about Malena's whereabouts.
Nino goes to Messina to find her. A year later, they return. The villagers, especially the women, astonished at her courage, begin to talk to "Signora Scordia" with respect. Though still beautiful, they think of her as no threat claiming that she had wrinkles near her eyes and put on some weight.
In the last scene near the beach, Renato helps her pick up some oranges that had dropped from her shopping bag. Afterwards he wishes her "Buona fortuna, Signora Malena" (good luck, Mrs. Malena) and rides off on his bicycle, looking back at her for a final time, as she walks away, with the retrospective thought that he has not forgotten her, even after a few years. He said, "Of all the girls who asked me if I remember them, the only one I remembered is the one who did not ask." The audience is left not knowing if Malena ever realizes Renato's feelings for her.