After fighting organized crime as the mercenary Deadpool for two years, Wade Wilson fails to kill one of his targets on his anniversary with Vanessa, his girlfriend. That night, after the pair decides to start a family together, the target tracks Wade down and inadvertently kills Vanessa. Wade kills all of his men in revenge, before pulling them both into the path of an oncoming truck. He blames himself for Vanessa’s death and attempts to commit suicide six weeks later by blowing himself up. Wade has a vision of Vanessa in the afterlife, but the pieces of his body remain alive and are put back together by Colossus. Wade is left with only a Skee-Ball token, an anniversary gift, as a final memento of Vanessa.
Recovering at the X-Mansion, Wade reluctantly agrees to join the X-Men because he believes Vanessa would have wanted him to. He, Colossus, and Negasonic Teenage Warhead respond to a standoff between authorities and the unstable young mutant Russell Collins / Firefist at an orphanage, labeled a “Mutant Re-education Center”. Wade realizes that Russell has been abused by the orphanage staff, and kills one of the staff members. Colossus stops him from killing anyone else, and both Wade and Russell are arrested. Restrained with collars that suppress their powers, they are taken to the Ice Box, an isolated prison for mutant criminals. Meanwhile, Cable — a cybernetic soldier from the future — travels back in time to kill Russell.
Cable breaks into the Ice Box and attacks Russell. Wade, whose collar breaks in the ensuing melee, attempts to defend Russell. After Cable takes Vanessa’s token, Wade forces himself and Cable out of the prison, but not before Russell overhears Wade deny that he cares for the young mutant in order to protect him. Near-death again, Wade has another vision of Vanessa in which she convinces him to help Russell. Wade organizes a team called X-Force to break Russell out of a prison-transfer convoy and defend him from Cable. The team launches its assault on the convoy by parachute, but all of the members die during the landing except for Wade and the lucky Domino. While they fight Cable, Russell frees fellow inmate the Juggernaut, who agrees to help Russell kill the abusive orphanage headmaster. The Juggernaut destroys the convoy and rips Wade in half, allowing himself and Russell to escape.
While recovering, Cable offers to work with Wade and Domino to stop Russell from killing the headmaster — in the future, Russell has become a serial killer as a result of the incident, having burned Cable’s family alive — agreeing to give Wade a chance to talk Russell down. At the orphanage, they are overpowered by the Juggernaut while Wade attacks the headmaster until Colossus — who had at first refused to help Wade due to Wade’s murderous ways — arrives to distract the Juggernaut. When Wade fails to talk down Russell, Cable shoots at the young mutant. Wade leaps in front of the bullet while wearing the Ice Box collar and dies, reuniting with Vanessa in the afterlife. Seeing this sacrifice, Russell does not kill the headmaster; this changes the future so that Cable’s family now survives. Cable uses the last charge on his time-traveling device, which he needed for returning to his family, to go back several minutes and strap Vanessa’s token in front of Wade’s heart. Now when Wade takes the bullet for Russell, it is stopped by the token and both survive while Russell still has his change of heart. Afterward, the headmaster is run over by Wade’s taxi-driver friend Dopinder.
In a mid-credits sequence, Negasonic Teenage Warhead and her girlfriend Yukio repair Cable’s time-traveling device for Wade. He uses it to save the lives of Vanessa and X-Force member Peter, and kills both X-Men Origins: Wolverine’s version of Deadpool and actor Ryan Reynolds while he is considering starring in the film Green Lantern.