In 1799, New York City police constable Ichabod Crane is dispatched to the Dutch hamlet of Sleepy Hollow, which has been plagued by a series of brutal decapitations: Peter and Dirk Van Garrett, a wealthy father and son, and a widow, Emily Winship. Received by the insular town elders—wealthy businessman Baltus Van Tassel; town doctor Thomas Lancaster; the Reverend Steenwyck; notary James Hardenbrook; and magistrate Samuel Philipse—Ichabod learns that locals believe the killer is the undead apparition of a headless Hessian mercenary from the American Revolutionary War who rides a black steed in search of his missing head.
Ichabod begins his investigation, skeptical of the paranormal story. Boarding at the home of Baltus Van Tassel and his second wife, Lady Van Tassel, he is taken with Baltus’ spiritual daughter, Katrina. When a fourth victim, Jonathan Masbath, is killed, Ichabod takes the victim’s son, Young Masbath, under his wing. Ichabod and Masbath exhume the victims on a tip from Philipse, learning that the widow died pregnant; Ichabod witnesses the Horseman killing Philipse shortly after. He, Young Masbath and Katrina venture into the Western Woods, where a crone living in a cave reveals the location of the Horseman’s grave at the “Tree of the Dead”. He digs up the Horseman’s grave and discovers the skull has been taken, deducing that it has been stolen by someone who now controls him and that the tree is his portal into the living world.
That night, the Horseman kills Beth Killian, the village midwife, and her family, as well as Katrina’s suitor Brom when he attempts to intervene. Judging by the Horseman’s habit of murdering specific victims and leaving others in his path unharmed, Ichabod hypothesizes that he is attacking select targets linked by a conspiracy. He and Masbath visit Hardenbrook, who reveals that the first victim, Peter Van Garrett, had secretly married the widow, writing a new will that left his estate to her and her unborn child. Ichabod deduces that all the subsequent victims (except Brom) are either beneficiaries or witnesses to this new will, and that the Horseman’s master is the person who would have otherwise inherited the estate: Baltus, a Van Garrett relative.
Upon discovering the accusation, Katrina burns the evidence. Hardenbrook commits suicide, and Steenwyck convenes a town meeting to discredit Ichabod, but Baltus bursts into the assembly at the church, announcing that the Horseman has killed his wife, although he did not actually witness her death: he fled upon seeing the Horseman approach his wife with his sword in hand. The Horseman attacks the church, but is unable to enter. In the chaos, the remaining elders turn on and attack each other: Steenwyck and Lancaster are killed, and the Horseman harpoons Baltus through a window, dragging him out of the church and acquiring his head.
Initially concluding that Katrina controls the Horseman, Ichabod discovers that her diagram, which he believed summoned the Horseman, is really one of protection, and additionally finds a post-mortem wound on “Lady Van Tassel’s” body. Lady Van Tassel, alive and well, then reveals herself to Katrina; the body assumed to be hers was in fact that of Sarah, a maidservant she had murdered and dressed in her clothes. Lady Van Tassel abducts Katrina and explains her true heritage from an impoverished family evicted years ago by Van Garrett when he favored Baltus and Katrina instead. She swore revenge against Van Garrett and all who had wronged her, pledging herself to Satan if he would raise the Horseman to avenge her, and also to claim the Van Garrett and Van Tassel estates uncontested. Manipulating her way into the Van Tassel household, she used fear, blackmail, and lust to draw the other elders into her plot. Having eliminated all other heirs and witnesses — and having killed her sister, the crone, for aiding Ichabod — she summons the Horseman to finish Katrina.
Ichabod and Masbath rush to the windmill as the Horseman arrives. After an escape that destroys the windmill and the subsequent chase to the Tree of the Dead, Ichabod retrieves the Horseman’s skull from Lady Van Tassel and returns it to him, breaking the curse, and setting the Horseman free from Lady Van Tassel’s control. With his head restored, the Horseman spares Katrina and abducts Lady Van Tassel, biting out her tongue for commanding him as a slave, and returning to Hell with her in tow, fulfilling her end of the deal. Ichabod returns to New York with Katrina and Young Masbath, just in time for the new century.