The movie starts with Eleanor "Nell" Vance (Lili Taylor) arguing with her sister over the house which her recently deceased mother, whom Nell took care of for 11 years, left her sister in the will. After her sister gives her her mother's car, Nell orders her sister, brother-in-law, and nephew to leave. Once she's alone she finds an ad in the local newspaper asking for volunteers to take part in a study on insomnia at an old New England mansion, which Nell decides to join.
Elsewhere we find Dr. Marrow (Liam Neeson) discussing with his assistant Mary over which volunteers he should use for his study, which he explains is actually an experiment on how people react to fear. Once Nell arrives at Hill House, she argues politely with Mr. Dudley the caretaker to let her in. After minutes of arguing she finally enters through the gates of Hill House where at the door she finds Mr. Dudley's wife Mrs. Dudley. As Nell makes her way to her room, it's clear that she's instantly drawn to the house.
Moments later Theo (Catherine Zeta-Jones) arrives and gives Nell with an awkward homophobic reaction. After the two get to know each other a little better, they both go downstairs and explore, and find the carousel room, then they return to the main entrance and meet Luke (Owen Wilson) Dr. Marrow, and his two assistants Mary and Todd. Once they get to dinner they discuss insomnia issues and find out more about each other, and learn what they'd be doing for the next few days.
After dinner, Dr. Marrow leads his guests to a room to tell everyone the story of Hill House and how Hugh Crain had built it for his wife and wished desperately for children, which all died at birth. After Dr. Marrow tells the story his assistant Mary talks about how she can feel the evil everywhere and that there's more to the story. As she goes up to examine the piano one of the strings snaps and cuts her, causing her and Todd to leave for the remainder of the movie.
As everyone gets ready for bed Dr. Marrow tells Luke about how Hugh Crain's wife had killed herself, in order to scare Luke. Once upstairs Luke occupies himself with a book and a candy dispenser, while Theo tries to get closer to Nell, and Nell reluctantly asks to go to bed. As Nell and Theo are in bed, Luke decides to wander around, and is met be Dr. Marrow, who decides to talk for a while. As everything calms down for the night Nell is startled by a screaming Theo, in response to a constant mysterious banging on the walls.
Nell and Theo cower as Luke rushes to see what the screaming is, although he was unaware of any banging. The next morning everyone tries to talk things out, but Dr. Marrow assures everyone the coldness and noises were all due to the old plumbing. The next night as Nell is asleep the movie encounters it's first visual samples of paranormal activity, and Nell is encountered by ghostly figures taking forms through the bed sheets and curtains.
As Nell and Luke are filling out papers for Dr. Marrows research, Luke confides in Nell that Dr. Marrow must be up to something and that he would get to the bottom of things. Luke soon wanders off talking about Theo leaving Nell alone, where she experiences more paranormal events. Everyone quickly rushes in to see what was wrong and finds Nell scared, and concerned over what was happening in the house.
While Dr. Marrow and Luke looked around to see what might have startled Eleanor look comes to a frightening observation that the large portrait of Hugh Crain had been vandalized with blood reading, "Welcome Home Eleanor." Eleanor is appalled at the writing and demands to know who did it, but no one confesses, leaving tension between the characters.
The group soon makes their way to the green room where they find a large unstable spiral staircase, and a fountain containing a large statue of Hugh Craine, and some more statues of a women surrounded by 6 children. As another night comes we find Nell sleeping, but she is soon awakened by some more sounds. As she looks around she finds a trail of bloody foot prints leading her to a hidden library.
In the library she finds logs of hundreds of children that Hugh Craine must have taken in to his house, finding that many of them had actually died working for Hugh Crain. She goes to tell Theo, but Theo doesn't believe what Nell tells her, and goes back to bed. Once Eleanor is alone she starts to brush her hair, but when she stops her hair parts on it's own, and Eleanor is deeply frightened once more.
The next morning Nell finds Dr. Marrow's studies, and learns what the experiment actually is. She also finds out that he's interpreting her behavior as delusional. In the statue garden Luke talks to Theo and seems to have also figured out what Dr. Marrow was doing, but when they encounter Nell, she expresses that it's not Dr. Marrow doing everything to the house, and that it's indeed ghosts. She then insists that home is where the heart is.
When Nell looks up she sees Hugh Crain's wife hanging, but no one else sees it leading everyone to think even more that Eleanor is mentally unstable and should go home. Nell rushes to the library and finds pictures of Hugh Crain's wife whispering for her to check the fire place. In the fire place Nell finds a skeleton that comes to life causing Nell to run away, following the voices of children. She tries to go through a door but is punched by a hand that formed from the door and soon disappeared.
Eleanor rushes to the rest of the group and concludes that Hugh Crain took children from the town to work at the mills then never let them go. As she tells this to Theo, Luke, and Dr. Marrow, they conclude that she's going crazy from emotional distress and fear. As Theo tries talking to Dr. Marrow about her, she finds that they're in an experiment to study reactions to fear, and becomes furious at what the experiment had done to Nell.
Once Nell's in bed and Theo finishes comforting her and leaves to bring her tea, the walls form the shape of a face, and everything starts falling apart around her. She runs out and looks in the mirror to see Mrs. Crain's face, and then runs away again to the carousel room. She's then extremely frightened and runs to the green room. Theo, Luke, and Dr. Marrow go searching for Nell and finally come to the green room to find Nell climbing the spiral stair case.
Dr. Marrow goes to save her, but the stairway starts to unhinge, causing Dr. Marrow to desperately and quickly bring Nell to safety. Dr. Marrow goes to the green room to examine and take notes, and is grabbed by the statue of Hugh Crain, which them starts to fountain out blood. He runs to Theo and Luke, to go check on Eleanor. Eleanor's bed cages her in metal beams, and Theo, Luke, and Dr. Marrow desperately try to get in to help. Once they get in everyone else finally observes the paranormal aspects of Hill House for the first time.
As soon as they get Nell out they try to leave, but Hill House makes sure that there's no way of escaping. Nell then runs back to the house knowing that she's meant to save the children. Everyone runs in looking for her, so they can leave, and they finally find her. Even after Theo tries to compromise with letting her by letting her live with her, Nell refuses to leave until she saves the children. Luke, Theo, and Dr. Marrow still try to escape now that they can't leave the house, but can't find anyway out.
Luke then falls into the fire place, and as he's trying to get out he gets decapitated by a stone lion. The house is now coming to life, and everything that can is trying to attack the current occupants. Finally the ghost of Hugh Crain comes out for a final battle, but as his ghost is being sent to the walls Eleanor goes along with it crashing her body against the stone door. She then falls to the ground dying. As Nell dies the children's spirits are release along with her's. The movie ends with the Dudleys returning and a final shot of the house.