Seymour "Sy" Parrish (Robin Williams), a mini-lab photo technician at SavMart's one-hour photo developing clinic in suburban Los Angeles, leads a depressing, solitary life outside of the "heaven-like", hyperreality atmosphere of the department store. Every day he labors to ensure his customers get the best quality photos possible; his life is truly his work, as he has no one and nothing to go home to at the end of each day. As each workday comes to an end, Sy falls into the inescapable routine of spending his evenings sitting alone in his barren living room, watching television. The only thing in Sy's immaculate apartment he has for companionship is a hamster, caged in his bedroom. He is an extremely organized, tidy, and meticulous type of person who wears all beige attire. Feeling out of place in a world where nobody seems to understand the precious gift of friends and family, Sy tends to immerse himself in his own fantasies to escape the pain of his existence.
His favorite customers are the Yorkin family, made up of husband Will (Michael Vartan), wife Nina (Connie Nielsen), and their son, Jake (Dylan Smith). He has done their photos for years and, over time, has developed an obsession with the family; he idolizes their happiness and affluence, memorizes every personal detail about them that he can learn, and finally begins to stalk them. Sy secretly makes his own copies of the Yorkins' photos from the film negatives and then puts them on a wall in his apartment, a massive collage which has accumulated to over 600 in count. Most of all, he fantasizes about being a member of their family and sharing in the love he assumes they must feel. However, he is painfully shy and his awkward attempts to become closer to the family are gently rebuffed.
Sy eventually manages to spark a connection to Nina when he pretends to have interest in a novel he noticed she had been reading on a particular day in the store. For the first time, Nina asks Sy personal questions about his life, realizing that he is indeed a lonely man, something only Jake had empathetically noticed earlier. This connection is short-lived, however, as Sy's boss, Mr. Owens, fires him the next day for stealing prints. While inspecting his photos for the last time, Sy discovers that Will is having an affair and his idyllic conception of the Yorkins as the 'perfect' family is shattered. He comes to hate and envy Will, who has everything Sy longs for, yet doesn't seem to care.
After losing his job, Sy stalks and takes pictures of Owens' young daughter, leading to a police investigation against him. While detectives Van Der Zee and Outerbridge (Eriq La Salle and Clark Gregg) are discovering Sy's obsession, Sy confronts Will and his mistress, Maya (Erin Daniels), during a rendezvous in their hotel room. With a knife and a camera, Sy forces the lovers to pose naked while he takes pictures. Throughout the ordeal, Maya panics and Sy reacts aggressively, but does not harm either of them. After the confrontation, as Sy just sits on the bed in his hotel room, he discovers that the police have arrived in the hotel and tries to escape. The alarm sounds and Van Der Zee pursues him while Outerbridge discovers Will Yorkin and his mistress, unharmed but traumatized. After a chase, the police finally apprehend Sy in the parking garage as he attempts to make a break for his car. Upon being arrested. Sy claims, "I just took pictures".
The final scene is set in a police interrogation room where Van Der Zee asks Sy why he terrorized the Yorkins, to which Sy indirectly reveals that his father had made him do "sick, disgusting things that no kid should ever have to do". The implication, confirmed by Romanek, is that Sy's father exploited him for child pornography. Romanek has also confirmed that Sy had used the camera as a means of both punishing Will and confronting his past, as his father used to tell him "it's all just pretend" while abusing him. Sy cannot understand why Will, as the perfect father, was determined to destroy his family, and thus permanently ended the fantasy he has held for nearly 10 years.
As the detective comes to understand him and prepares to take his confession, Sy asks for the pictures he made at the hotel, which the detective has described as "evidence". They appear to be only shots of household objects and interior furnishings he took after the incident in the hotel. This implies that Sy never took any pictures of Will and Maya, but only pretended to. However, in the earlier Director's cut version, we see additional deleted scenes in which the police analyze the actual crime scene photos that Sy had taken of Will and Maya.
The film closes with a picture of the Yorkin family with Sy. Romanek claims in the DVD commentary that the picture is intended to symbolize an open ending; it is left up to the viewer to decide whether the picture only exists in Sy's mind or if he ever sees the Yorkin family again.