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Kevin Flynn is a software engineer formerly employed by ENCOM who was noted for his intellectual brilliance and his youth. He wrote the programs for at least five distinct video games, but another engineer, Edward Dillinger, older and less intellectually brilliant but sneaky and underhanded, stole them all, then passed them off as his own, earning himself a series of promotions. Having been fired from the company by Dillinger, Flynn attempts to obtain evidence of Dillinger's actions by hacking the ENCOM mainframe, but the Master Control Program, or MCP, an artificial intelligence Dillinger has written, repeatedly stops him. When the MCP reveals its plan to take control of outside mainframes including the Pentagon and Kremlin, Dillinger attempts to stop it, only to have the MCP threaten to expose his plagiarism of Flynn's hugely successful games.

Flynn's ex-girlfriend, Dr. Laura Baines, and fellow ENCOM engineer Alan Bradley warn Flynn that Dillinger knows about his hacking attempts and has tightened security. Flynn persuades them to sneak him inside ENCOM, where he forges a higher security clearance for Alan's security program "Tron." In response, the MCP uses an experimental laser to digitize Flynn into the ENCOM mainframe, where programs appear in the likeness of the human "users" who created them.

Flynn quickly learns that the MCP and its second-in-command, Sark, rule over Programs and coerce them to renounce their "superstitious and hysterical belief" in the Users. Those that resist are forced to play in martial games in which the losers are destroyed. Flynn is forced to fight other Programs and meets Tron and Ram between matches. The three escape into the mainframe during a Light Cycle match. When Ram is mortally wounded and dies(by de-resolving or "derezzing"), Flynn learns that, as a User, he can manipulate the reality of the digital world.

At an input/output junction, Tron communicates with Alan and receives instructions about how to destroy the MCP. Tron, Flynn and Yori board a "solar sailer simulation" to reach the MCP's core, but Sark's command ship destroys the sailer, capturing Flynn and Yori. Sark leaves the command ship and orders its destruction. However, Flynn keeps it intact while Sark reaches the MCP's core on a shuttle, carrying captured Programs.

While the MCP attempts to consume the captive Programs, Tron confronts Sark and critically damages him, prompting the MCP to transfer all of its powers to him. Tron attempts to break through the shield protecting the MCP's core, while Flynn leaps into the MCP, distracting it long enough to reveal a gap in its shield. Tron throws his disc through the gap and destroys both the MCP and Sark.

As Programs all over the system begin to communicate with their users, Flynn is sent back to the real world, quickly reconstructed at his terminal. A nearby printer produces the evidence that Dillinger had plagiarized his creations. The next morning, Dillinger enters his office and finds the MCP deactivated and the proof of his theft displayed on the screen. Later, Flynn takes his rightful place as ENCOM's CEO and is greeted by Alan and Laura on his first day.