The film starts with the same opening scene of the film "The Conjuring", in which two young women and a young man are telling Ed and Lorraine Warren about their experience with the doll that they believe to be haunted, known as Annabelle.
One year earlier in 1970, John and Mia Gordon (Ward Horton and Annabelle Wallis) are expecting their first child. At church, the couple talks to their neighbors, the Higgins' (Brian Howe and Kerry O'Malley), over baby names. John is obviously nervous and not completely ready for it, even commenting on that to Mia. She is upset by his attitude toward the pregnancy, but he apologizes to her and gives her a doll that she's been trying to find for ages. Mia loves it and puts it with the rest of her dolls.
At night, there appears to be a murder happening in the house next door at the Higgins home. It wakes Mia up. She tells John and he goes over to investigate. He runs out of the neighbor's house covered in blood (not his), telling Mia to call 911. She does and is about to head back outside when she hears a voice telling her it likes Mia's dolls. Mia stands back frightened when she hears it, and a man covered in blood appears from behind her in the closet, stabbing her in the side. John runs in and fights the man, while a woman is also there trying to attack the couple. Police arrive and shoot the man dead while the woman kills herself in another room. She left a bloody symbol drawn on the wall while holding Mia's new doll. A drop of her blood falls on the doll's face and sinks into its eye.
A news report is shown that the assailants were Annabelle Higgins and her boyfriend. They murdered her parents and are said to have been part of a demonic cult.
The doctors say that Mia's baby is fine but there was damage to her cervix. She is ordered to stay bedridden for the remainder of her pregnancy.
John takes care of Mia as she recovers. Thinking the doll is creepy and involved with the mysterious happenings, Mia asks John to throw it away. He dumps it in a bin outside. Later, John is about to make Mia some Jiffy Pop popcorn until she falls asleep.
The next day, Mia is sewing and watching TV, while in the kitchen, the stove turns on by itself and heats up the Jiffy Pop. Mia cuts her finger on the sewing machine and tends to it, not aware when the Jiffy Pop catches fire. She smells the smoke and sees the fire. She tries to run out of the house, tripping over a chair, falling on her stomach, she then starts to crawl but is then dragged by an unseen force. A group of men run into the house and pull her out.
John, who works at the hospital, runs to find Mia. She is unharmed, and what's more, she gave birth to a healthy baby girl. They decide to name her Lea.
The family moves into a new apartment since Mia is afraid to return home. In their new place, Mia unpacks her dolls and finds that one doll (whom shall be referred to as Annabelle from here) in one of the boxes. Mia just places it alongside the other dolls.
As expected, more strange activity plagues Mia and her new baby. Mia meets two neighbor children that are coloring on the stairwell. The girl tries to introduce herself but her brother tells her not to say anything to Mia since she's a stranger. When Mia returns home, she sees the drawings from the kids, which show a continuous animation of Mia wheeling Lea in the carriage and letting it go in the path of a truck, where Lea is dead. Horrified, Mia shows the pictures to John.
On another occasion, Mia is alone and thinks she sees the ghost of a young girl. The door closes, and the girl starts to run to the door, then turning into the adult Annabelle Higgins. She disappears.
Mia contacts the detective that told them earlier about the murders Annabelle and her boyfriend committed. He informs her of their history in the cult called The Disciples of the Ram that seeks to summon a demon by claiming a soul. This also explains the symbol that Mia keeps seeing.
Mia goes to a bookstore run by a woman named Evelyn (Alfre Woodard). She gets a book called "The Devil's Welcome". From that, Mia determines that the presence that is haunting her wants a soul - Lea's.
The couple contacts their church's priest, Father Perez (Tony Amendola). He takes Annabelle (who looks more gray and scary with bloodshot eyes) with him to church. The ghost of Annabelle is nearby, along with a demonic-looking creature. Perez enters the church but is blown back by a powerful force and is thrown on his back. He is hurt badly, and the ghost snatches the doll.
John treats Perez at the hospital while Mia meets with Evelyn. Evelyn tells Mia that she had a daughter named Ruby that was around Mia's age when she died. Ruby died in a car accident caused by Evelyn. She was so distraught and guilt-ridden that she attempted suicide by cutting her wrists. However, she claims to have heard Ruby's voice telling her that it wasn't her time.
Perez warns John that it was indeed Annabelle's spirit that caused his injuries, and that she will take a soul that night. John rushes to warn Mia. In the apartment, the demonic presence haunts Mia and Evelyn. It pushes Evelyn out of the apartment and taunts Mia by locking her outside of Lea's room where the baby sits beneath the bookshelf. Heavy books fall around her while Mia screams for her baby. Annabelle (the doll) falls down and stares at Mia. Mia breaks the doorknob and runs in to grab Lea. Then, the doll appears to stand up on its own. It then seems to float in mid-air, but it's really being controlled by the demon. All around the room, "her soul" is written in red crayon. Mia grabs the doll and bashes it against Lea's crib and throws it on the floor. The doll then appears to turn into Lea, bloodied and dead. Mia runs over to her and cries, thinking she's killed her baby. It then turns into one of Mia's giggling dolls. She screams and asks what the demon wants. The window then opens amidst whispering sounds, with "your soul" written across it.
John runs home as Evelyn is trying to open the door. They both break it open to find Mia ready to jump out the window with Annabelle in her hands. John pulls Mia back in before she jumps, saying there must be another way. Evelyn grabs Annabelle and decides to make the sacrifice, knowing this is the way she can atone for Ruby's death. She plunges out of the window and hits the pavement. Lea is then heard in her crib, safe and sound. John and Mia mourn Evelyn but embrace their daughter.
Six months later, the Gordons have moved on and have not seen Annabelle since then. Elsewhere, a woman (the mother of one of the girls in the opening) comes into a store looking for a present for her daughter. She then spots a doll that is said to be a rare collector's item. That's when she purchases... ANNABELLE.
The ending text says that the Annabelle doll resides in a case in Ed and Lorraine Warren's little museum, and that it's blessed by a priest twice a month. There is also a quote from Lorraine Warren that says evil is real, and while we can contain it, we can never get rid of it. The camera then lingers on Annabelle as though she'll make a move, before cutting to black.