The story begins in 1991 in Iraq following the U.S. led Operation Desert Storm. Captain Ben Marco (Denzel Washington) is leading a small group of soldiers. His sergeant, Raymond Shaw, (Liev Schreiber) is depicted as quiet and introverted and does not quite fit in with the other men. A fierce fire fight then ensues and the scene fades.
It is now present day. Major Ben Marco is speaking to a group of boy scouts at a local school in the Northeast. After his presentation a former member of his unit approaches him. His name is Al Melvin (Jeffrey Wright )and he appears to be mentally disturbed. He shows Marco his sketch pad of his visions, talks about the horrible dreams he has and asks Marco if he ever has the dreams. Marco denies having such dreams and walks away from Melvin advising him to seek professional attention.
We then learn that Marco lives in a small unkempt apartment and indeed does have the dreams which he tries to avoid by taking mass quantities of No-Doz.
The dreams are of his squad of men in an undisclosed makeshift military hospital in Kuwait. Tubes and equipment are attached to the men's heads and some kind of implant has been installed in their brains to make them all believe the quiet and passive Sergeant Shaw heroically saved them all. In addition, both Marco and Shaw were told to kill two of their fellow soldiers which they did without hesitation. Apparently the brain controlling implants were successful.
This is important because Shaw's mother, Eleanor Shaw (Meryl Streep), is a very powerful U.S. Senator who has dreams of her son becoming president. Receiving the Congressional Medal of Honor and becoming a war hero is an important part of Raymond Shaw's political future. However, Raymond Shaw, like the rest of the men, never knew this was happening to him. He does not clearly recall saving the men of his unit, but he believes he must have because everyone tells him so.
Marco tries telling U.S. Army Intelligence officers about his dreams and what he believes may have happened to him and his men. He is dismissed as being mentally ill.
Marco takes a train to New York to see a scientist he helped escape from Albania years earlier. How they met is not explained. On the train to New York he meets a young lady, Rosie (Kimberly Elise), who is a clerk from his local grocery store and just happens to be on the same train. She becomes friendly with him and Marco accepts her invitation to stop by her cousin's apartment in New York to freshen up once they arrive.
While showering in the apartment, Marco discovers a small scar on his shoulder. He pulls out a pocket knife and cuts the scar open to reveal a very small metal implant. Unfortunately, this pellet is dropped down the drain when Rosie insists on opening the door because she is concerned about him. The shoulder implant should not be confused with a brain implant the soldiers also received. The purpose of the shoulder implant is never completely explained.
Marco then visits the scientist and tells him about the implant, the dreams, etc.
In the meantime, Raymond Shaw has become a U.S. Senator under his mother's tutelage. He is now running for Vice President. He is still quiet and uncomfortable around people, but he says the things that people want to hear. He dislikes the life his mother has forced him into, but he cannot seem to fight her. His only act of open rebellion was to join the U.S. Army in 1990 to get away from his mother after she helped to break up the fledging romance he had with Jocelyn Jordan (Vera Farmiga) the daughter of Senator Jordan (Jon Voight) who is Senator Eleanor Shaw's nemesis.
Marco visits Raymond Shaw at one of his campaign offices and talks to him about the dreams. Shaw denies having any dreams, but does concede he cannot remember certain aspects of the heroic acts he is said to have done. As the conversation intensifies, Marco tells Shaw to check his shoulder for an implant. Shaw dismisses such a suggestion. Marco then attacks him, tears off his jacket and shirt and bites his shoulder where the implant would be just as Secret Service agents burst into the room to subdue Marco. No one knows it, but Marco has the implant in his mouth now.
At the police station he learns that Melvin's body has turned up in a river and he is considered a possible suspect because he had been to Melvin's apartment earlier. He tells the authorities they should check Melvin's body for an implant. We see one agent in the background particularly interested in this information. Shaw does not press charges and Marco leaves. By now all the men under Marco's command, except Shaw, have died. He goes to the scientist's location with the implant and they discuss it.
Marco returns to Rosie's cousin's apartment where he is apparently staying. It appears as though some kind of a love interest has developed between Marco and Rosie. In the bathroom he detects a hidden camera and determines that Rosie must be part of the plot of people working against him. While she is sleeping he takes his possessions and leaves in a hurry.
With information gained from Raymond Shaw, the scientist, and others, Marco goes to the library to do research on the Internet. He learns that Manchurian Global, a worldwide conglomerate, employed a former South African genetic scientist with a questionable past to help them research the viability of creating a private army of elite soldiers who could be hired by the U.S. government to replace military forces that are stretched thin. He also learns that Manchurian Global is the largest contributor to Senator Eleanor Shaw's political career.
Marco goes to see his scientist friend only to discover his lab is gone. Everything has been removed. He then goes back to Rosie's apartment and confronts her with the facts he has. She tells him that she is a part of a deep government agency who has been investigating Raymond and Eleanor Shaw and she needs to see his files to understand what information he has. Marco confides in her, but we are still not certain whose side she is on.
Marco then makes contact with Senator Jordan (Jon Voight) and tells him everything he knows. Jordan is obviously cautious and doubting, but there are certain parts of Marco's story that make sense.
Jordan calls on Eleanor and Raymond Shaw and tells them everything he knows and suggests that Raymond withdraw from the campaign or he'll go public with his information. He tells Raymond that he'll help him get medical attention and appears to feel genuine compassion for Raymond.
After Jordan leaves, Eleanor Shaw uses the mind control code words Manchurian Global told her about and tells her son to kill Senator Jordan which he does. While murdering Senator Jordan his daughter, Jocelyn, attempts to intercede and she is killed as well.
Through Rosie, who is a Secret Service agent, a meeting is set up between Marco and Raymond Shaw. Marco has learned about the death of the senator and his daughter and pleads with Raymond Shaw to come with him for help. At his point Shaw's mobile phone rings and it is his mother. She asks to speak with Marco and, once again, uses the mind control code words to give an order to Marco; he is to shoot the president-elect that night at the campaign celebration. Marco then disappears and Rosie tries to find him.
That night Marco is dressed in his full military uniform as he attends the gala event. He finds his perch and the high powered rifle that has been placed there for him. Raymond Shaw has been instructed to stand at a precise spot on the stage to allow Marco a clear shot at the new president elect. Raymond Shaw seems to understand he killed Senator Jordan and his daughter, the girl he loved, but is not sure how to deal with it.
The party starts and the president-elect comes out on stage to thunderous applause and cheers while the band plays. Raymond Shaw then comes forward, but does not stand where he is supposed to. Marco has the shot trained on the president-elect, but now he appears confused by the change of location of the target. In addition, Raymond Shaw invites his mother to join him on stage which she does. We see Raymond Shaw looking up at Marco and one senses that Shaw wants Marco to kill him and end the madness. Marco is confused, but we cannot tell who he is going to shoot. At last a shot is fired which pierces the bodies of Raymond and his mother, killing them both.
Rosie rushes to Marco's location and enters the door just as Marco is about to shoot himself. She shoots him in the shoulder, preventing his suicide.
In the end, both Raymond and Eleanor Shaw are dead, Manchurian Global is under full investigation in the deaths of the Shaws and the Jordans, Marco is off the hook as the Secret Service ascribes the assassination to a international terrorist with ties to Manchurian Global. The final scene shows Rosie, Marco, and military authorities at the place of the makeshift military hospital. The lid has been blown off Manchurian Global's secret operation and the people related to it. Marco is vindicated.