In a world where toys are living things but pretend to be lifeless when humans are present, a group of toys, owned by a boy named Andy Davis, are caught off-guard when Andy’s birthday party is moved up a week, as his family (including his mother and infant sister Molly) is preparing to move the following week. Andy’s toys—including Bo Peep, Mr. Potato Head, Rex the dinosaur, Hamm the piggy bank and Slinky Dog—fear they will be replaced by new toys that Andy receives during the party. To ease the situation, Sheriff Woody—the toys’ leader and Andy’s favorite toy—sends out army men, led by Sarge, to spy on the party and report the gift arrivals to the other toys via baby monitors. The toys are relieved when the party appears to end without any of them being supplanted by newer toys, but then Andy receives a surprise gift: a Buzz Lightyear action figure.
Buzz thinks he is a real space ranger who has crash-landed on a strange planet. Buzz quickly impresses the other toys with his various features, and Andy begins to favor him, which makes Woody feel rejected compared to the newer, sleeker and more advanced Buzz. Two days before the move, Andy’s mother tells him that he can only bring one toy to a family outing at the Pizza Planet restaurant. Knowing that Andy will choose Buzz, Woody attempts to trap Buzz behind a desk but ends up knocking him out of the window, causing most of the other toys (except Slinky and Bo) to accuse Woody of “murdering” Buzz out of jealousy. Before they can exact revenge, Andy arrives and, after failing to find Buzz, takes Woody instead.
When the family stops for gas, Woody finds that Buzz has hitched a ride on their van. The two fight, falling out of the van in the process, and the family drives away, stranding them. After an argument, they manage to reach Pizza Planet by hitching a ride on a delivery truck. Buzz, still believing he is a real space ranger despite Woody’s attempts to convince him otherwise, gets them stuck in a crane game full of alien toys, where they are retrieved by Andy’s sadistic, toy-destroying neighbor, Sid Phillips. At Sid’s house, the two watch in horror as Sid steals his younger sister Hannah’s doll, claiming the doll is sick, and then performs “surgery” to replace the doll’s head with that of a pterodactyl.
While attempting to escape, Buzz sees a television commercial for a Buzz Lightyear action figure and, after failing to fly out a window (breaking his arm off in the process), realizes he is just a toy and becomes despondent. Woody attempts to signal Andy’s toys for help, but they misunderstand his gesture and ignore him. Sid’s mutant toys fix Buzz’s arm, and Woody restores Buzz’s confidence by telling him about the joy he can bring to Andy as a toy. The next morning, as Sid is about to launch Buzz on a firework rocket, Woody and the mutant toys come to life in front of Sid, terrifying him into no longer mistreating toys. Woody bids the mutant toys farewell and escapes with Buzz—only to see Andy and his family departing for their new home.
The duo try to make it to the moving truck, but Sid’s dog Scud sees them and gives chase. Buzz saves Woody from Scud but is left behind, so Woody attempts to rescue him with Andy’s remote-controlled car, RC. Thinking that Woody is “killing” RC as well, the other toys attack Woody and toss him off the truck. Buzz and RC retrieve Woody; the other toys realize their mistake and try to help, but RC’s batteries run out before he reaches the truck. Realizing that Sid’s rocket is still strapped to Buzz’s back, Woody ignites it, hurtling them towards the truck. Woody throws RC into the truck before he and Buzz soar into the air; Buzz opens his wings to free himself from the rocket just before it explodes, and he glides with Woody to safety inside a box in the Davis’s van, right next to Andy, who concludes they were in the car all along.
On Christmas Day at their new home, Woody and Buzz stage another reconnaissance mission to prepare for the new toy arrivals; one of the toys is Mrs. Potato Head, to Mr. Potato Head’s delight. As Woody jokingly asks what might be worse than Buzz, they discover Andy’s new gift is a puppy, and the two share a worried smile.