A dollmaker named Samuel Mullins and his wife Esther grieve for the loss of their seven-year-old daughter Annabelle, nicknamed “Bee”, who dies when she accidentally steps in front of a car.
Twelve years later, the Mullins open their home to provide shelter for Sister Charlotte and six girls left homeless by the closing of their orphanage. Despite having been warned to avoid Bee’s locked bedroom, Janice, a young orphan disabled by polio, discovers a note saying “Find me” and sneaks into the room, which has mysteriously become unlocked. She finds a key for Bee’s closet and opens it, where she sees an eerie porcelain doll. This unwittingly releases a powerful demon that begins to terrorize the girls.
One night, the demon, taking Bee’s form, appears to Janice, saying that it wants her soul. Although she attempts to get away using a stairlift, the demon recalls the stairlift and hurls her violently down to the ground floor, leaving her severely injured and confined to a wheelchair. Janice’s best friend Linda is tormented by the demon. One morning, the demon, posing as Sister Charlotte, wheels Janice into the old barn, where, in the form of Bee, it attacks and possesses her after throwing up black bile directly into Janice’s mouth. Linda notices changes in Janice’s behavior and tells Samuel that Janice snuck into Bee’s room and found the doll. Janice, who can now walk, transforms into the demon and brutally kills Samuel.
Linda takes Janice’s doll and throws it into the well. A strange noise comes from the well and she is almost dragged into it, but Sister Charlotte saves her. Alarmed, Sister Charlotte speaks with the disfigured Esther, who is confined to her bedroom. Esther explains that after Bee’s death, they prayed to whatever entity would grant their wish to see their daughter again. An unknown entity answered their prayer and though they briefly saw Bee’s spirit, the entity convinced them to transfer its essence into one of Samuel’s crafted dolls. They happily agreed but soon realized they had attracted a demon looking for a human host. One night, Esther saw Bee’s spirit transforming into the demon, which then gouged out her eye. Enlisting the help of priests to bless the house, they locked the doll in Bee’s closet. Esther and Samuel opened their house as a shelter to repent for their actions, but Esther now regrets it since this has provided an opportunity for the demon to look for a human host.
The demon murders Esther and attacks Sister Charlotte. The orphans leave the house, but Linda is trapped and hides in Bee’s room as the possessed Janice tries to stab her. Sister Charlotte locks Janice and the doll inside the closet. The next day, police arrive to search the house and find only the doll, which they remove as evidence. Sister Charlotte, Linda, and the orphans are escorted away by officers, while Janice escapes through a hole in the closet wall and relocates to an orphanage in Santa Monica. Still possessed, she becomes reclusive and calls herself Annabelle. The Higgins family soon adopt Annabelle.
Twelve years later, a grown-up Annabelle joins a Satanic cult and, along with her boyfriend, murders her adoptive parents, which catches the attention of their next-door neighbors, the Forms.