Allison, Chad, Chloe, Chuck, Jason, Naomi, Todd, Mitch and Mike are going camping in West Virginia. While at a gas station, they encounter Tucker and Dale, two well-meaning hillbillies who have just bought the vacation home of their dreams: a run-down lakefront cabin, deep in the woods. On Tucker’s advice, Dale tries to talk to Allison, but because of his inferiority complex and appearance, he only scares her and her friends. On the way to the cabin that Tucker has recently bought, they are pulled over by Sheriff Gurr, who warns them of the dangers of the area.
Tucker and Dale arrive at their decrepit cabin and begin repairing it. Nearby in the woods, Chad tells a story about the “Memorial Day Massacre”, a hillbilly attack which took place 20 years ago. The college kids go skinny-dipping where Tucker and Dale are fishing, and Allison, startled, hits her head. Tucker and Dale save her from drowning, but her friends think she has been kidnapped. When Allison wakes up in Tucker and Dale’s cabin the next day, she is initially scared but gradually befriends them. The other college kids arrive at the cabin to save Allison from her “psychopathic captors”, and Chuck runs away to get the police. While Dale and Allison are inside the cabin, Tucker angers some bees and frantically waves around his chainsaw, which the college kids misinterpret as hostility. They scatter through the woods, where Mitch accidentally impales himself on a broken tree, killing himself. After finding Mitch’s body, Chad persuades the others that they are in a battle for survival.
Allison’s friends follow Tucker and Dale back to their cabin and see Allison helping out with construction of an outhouse, but they assume she’s being made to dig her own grave. The college kids attack, but Todd and Mike end up accidentally killing themselves, and Allison is accidentally knocked unconscious by Dale’s shovel. The other kids assume the hillbillies killed the two when they see Tucker trying to save Mike from the wood chipper. Tucker and Dale think the college kids are suicidal and that contacting the police will make them murder suspects. Chuck arrives back with Sheriff Gurr, who expresses doubt over Tucker and Dale’s suicide-pact theory. Gurr goes inside the cabin and accidentally kills himself with a loose beam, then Chuck accidentally kills himself with the sheriff’s gun. Chad reappears and attempts to shoot Tucker and Dale but only manages to capture Tucker, whom he ties upside down to a tree. Chad then tortures Tucker and cuts off two of his fingers. He sends them with a message to Dale, to come and get Tucker.
Dale leaves to rescue Tucker while Chad and Naomi return to the cabin to save Allison. When Allison tries to explain the situation, they accuse her of having Stockholm syndrome. Tucker and Dale return, and Allison attempts to lead a calm discussion. Chad says his grandmother told him that his father was killed in the Memorial Day Massacre, and his mother was the lone survivor. Jason and Chloe break in to save everyone, and a fire breaks out. Tucker, Dale, and Allison escape; Naomi, Chloe and Jason die, and Chad, insane and scarred, vows revenge. After a car crash, an injured Tucker tells Dale that Chad has taken Allison to an old sawmill. At the sawmill Chad ties Allison up and forcibly kisses her. Dale arrives and rescues Allison, and the two barricade themselves inside an upstairs office where they discover news clippings revealing Chad’s father to be the killer and rapist, not one of the victims. Chad becomes enraged, and Dale stops his attack by throwing a box of chamomile tea at Chad, giving him an asthma attack. Chad, standing near a window, convulses and falls off the building.
The police and a news crew arrive late at the cabin and broadcast a news report stating that the deaths appear to be the result of a suicide pact and a deranged killer, who is revealed to be Chad, who has survived the fall. The reporter and cameraman are the same two from the movie’s opening scene. Tucker watches the report on the news while convalescing in the hospital. Dale enters and they discuss Tucker’s recovery. Tucker asks Dale whether he managed to invite Allison on a date and is happy to hear the two of them are going bowling. Later that night at the bowling alley, Dale encourages a fellow hillbilly to talk to some girls and to “just be himself”. As Dale and Allison confess their feelings for each other and kiss, the new hillbilly accidentally knocks out a girl in the background, starting a new misunderstanding.