The film begins on the eve of the 1997 British general election, which sees Tony Blair (Sheen) elected as the United Kingdom's first Labour Party Prime Minister in 18 years. While posing for an official portrait, the Queen (Mirren) talks with the artist and expresses her regret about not being allowed to vote. She is slightly wary of the new prime minister and his pledge to "modernise" the country, but Blair promises to respect the independence of the Royal Family. When Blair visits Buckingham Palace to kiss hands, the Queen follows custom and asks him to form a Government in her name.
Three months later, during a visit to Paris, Diana, Princess of Wales is killed in a car accident in the Pont de l'Alma tunnel along with her companion Dodi Fayed and driver Henri Paul. Blair's director of communications, Alastair Campbell (Mark Bazeley), immediately prepares a speech in which he describes her as "the people's princess." Blair gives the speech the next morning and the phrase catches on immediately. Over the next few days, millions of British people in London erupt in an outpouring of grief, as they flock to Buckingham and Kensington palaces to leave floral tributes and notes.
Meanwhile, the Royal Family are still on their summer residence at Balmoral Castle, the Queen's estate in Aberdeenshire, Scotland. Diana's death immediately sparks division among senior members of the family; while the Queen is saddened by Diana's death, she and her husband differ with Prince Charles, Prince of Wales over what arrangements should be made. The Queen observes that since Diana divorced Charles (Alex Jennings) a year earlier, she is no longer a member of the Royal Family. Consequently, she insists that the funeral arrangements are a "private affair" and are best left to the princess's own family, the Spencers. A visibly grief stricken Prince Charles, however, argues that Diana was mother of the future King and that the Queen's suggestion is dismissive of this fact. Following her mother's suggestion, the Queen eventually sanctions the use of an aircraft of the Royal Flight to bring Diana's body back to Britain. Charles ensures that his ex-wife's coffin is draped with a Royal Standard instead of remaining a "wooden crate."
In London, the bouquets begin to pile up along the palace railings, forcing the changing of the guard to use another gate. Meanwhile, British tabloids become increasingly inflammatory about the lack of any statement by the Royal Family. Prince Charles, during a brief conversation with Blair and later through back-channel contacts, leaves no doubt that he shares the Prime Minister's views about the need for a more public expression of grief. As the Queen's ratings plummet, Blair's popularity rises sharply, to the delight of the his Anti-Monarchist advisers and wife Cherie (Helen McCrory).
Blair, however, does not share these sentiments. Despite not concurring with the Queen's course of action, he admires her and tells his wife that a Republican Britain is a ludicrous idea. Later on, he angrily denounces the anti-royal disdain of his Labour advisors and accuses Diana of having tried to destroy everything which the monarchy stands for. After days of building pressure, Blair calls the Queen at Balmoral and urgently recommends a course of action he believes is needed to regain the public's confidence in the monarchy. These measures include attending a public funeral for Diana at Westminster Abbey, flying a Union flag at half mast over Buckingham Palace (the flag is only meant to be flown when a Royal person is present and has never been used for mourning), and speaking to the nation about Diana's legacy in a live, televised address from the palace.
Blair's recommendations outrage Prince Philip, Duke of Edinburgh (James Cromwell) and Queen Elizabeth, the Queen Mother (Sylvia Syms). Philip is also surprised that Elton John is asked to attend and sing a song, "Candle in the Wind" in Diana's honour. They view such steps as an undignified surrender to public hysteria, created by the tabloids, that will eventually calm down when the public comes to its senses. The Queen seems more concerned about this and although she shares their feelings, she begins to have doubts as she closely follows the news coverage. Speaking with her mother, the Queen muses that there has been some shift in public values, that perhaps she should step aside and hand over the monarchy to the next generation. The Queen Mother dismisses these ideas, however, saying that she is one of the greatest assets the monarchy has ever had, stated: "The real problem will come when you leave." She also reminds her daughter of the promise she made in Cape Town, South Africa, on April 21, 1947, her 21st birthday, in which she promised that her "whole life, whether it be long or short, shall be devoted to your service and the service of our great imperial family to which we all belong..."
Later at Balmoral, Philip attempts to distract his grandsons from their mother's death by taking them deer stalking. While venturing out alone in her Land Rover, the Queen damages her vehicle while fording a river and has to call for assistance. While waiting, she weeps in frustration but then catches sight of the majestic Red Deer stag which her grandsons have been stalking. Hearing a distant gunshot, she shoos the animal away. Later that day, the Queen decides to carry out the recommendations of Blair. While preparing to return to London, she is horrified to learn that the stag has been killed on a neighbouring estate, by a visiting stockbroker. She visits the estate where the stag is being dressed and expresses dismay at the amateurish way it was hunted.
In the film's climax, the Royal Family return to London and inspect the floral tributes. The Queen also goes on live television to speak about Diana's life and legacy, even going so far as calling her "an exceptional and gifted human being." Two months later, Blair comes to Buckingham Palace for a weekly meeting. The Queen has regained her popularity, but believes she will never quite fully recover from "that week." She cautions Blair that one day he too will find that public opinion can rapidly turn against him. She declares, however, that times have changed and that the monarchy must "modernise." When Blair suggests that he can help with this, The Queen responds, "Don't get ahead of yourself Prime Minister. Remember, I'm supposed to be the one advising you".