In New York City, Zeus and Poseidon meet at the top of the Empire State Building, where Zeus reveals that his master lightning bolt has been stolen and accuses Poseidon's demigod son, Percy Jackson, of the theft. Poseidon reminds him that Percy is unaware of his true identity, but Zeus declares that unless his master bolt is returned to Mount Olympus before the next summer solstice, war will be waged.
Percy is a sixteen-year-old teenager who appears to be dyslexic, but has a unique ability to stay underwater for a long time. While on a school trip to the local museum, Percy is attacked by a Fury disguised as his substitute teacher, who demands the lightning bolt. Percy's best friend, Grover Underwood, and his Latin teacher, Mr. Brunner — both of whom appear disabled — help Percy and scare off the Fury. Upon learning of the Fury's reason for the attack, Mr. Brunner gives Percy a pen, tells him it is a powerful weapon, and has Grover take Percy and his mother Sally to Camp Half-Blood, leaving behind Sally's lazy husband Gabe Ugliano. However, the three are attacked by a minotaur that appears to kill Sally, who is unable to enter the camp. Grover tells Percy to use the pen, and Percy discovers that it is a sword, which he uses to fight the minotaur, without initial success. Percy kills the minotaur with its own horn, then faints from shock.
Three days later, Percy wakes up in the camp. He learns that he is the son of Poseidon, that Grover is a disguised satyr and his protector, and that Mr. Brunner is the centaur Chiron, also initially disguised. Chiron suggests that Percy go to Mount Olympus to convince Zeus of his innocence. Percy begins training to use his demigod powers, which include water manipulation and using water to heal. He also meets other demigods, including Annabeth Chase, daughter of Athena; and Luke Castellan, son of Hermes. After winning a Capture the Flag game, Percy is visited by a fiery apparition of his uncle Hades, who reveals that Sally is with him in the Underworld and that he will return her safely if Percy hands over the lightning bolt. Defying Chiron's orders, Percy decides to go to the Underworld, joined by Grover and Annabeth. They visit Luke, who gives them a map showing the location of three pearls belonging to Hades' wife, Persephone, which they can use to escape the Underworld. They are also given a shield and a pair of winged sneakers Luke stole from his father.
The trio heads out, locating the first pearl at an old garden center but encountering Medusa, who tries to kill them until decapitated by Percy; her head is taken with them for later use. They locate the second pearl in the Parthenon in Nashville; Percy uses the winged shoes to take it from a statue of Athena. However, they are then confronted by the Hydra, which Grover petrifies using Medusa's head. The third pearl is located at the Lotus Casino in Las Vegas, where the three eat lotus flowers and forget their reason for being there. They stay in the casino for five days until Poseidon speaks in Percy's mind, helping Percy return to his senses. Percy frees Grover and Annabeth from the effects of the flowers and they flee, discovering that the casino is run by the Lotus-Eaters. With all three pearls in their possession, Percy, Grover, and Annabeth head into the Underworld, the portal to which is located in Hollywood.
In the Underworld, they meet Hades and Persephone. Though Percy tells Hades that he does not have the lightning bolt, Hades finds it hidden inside Luke's shield, revealing that Luke is the lightning thief. Persephone knocks Hades out with the lightning bolt to get back at him for imprisoning her for all eternity and hands the bolt to Percy. However, because they only have three pearls, Grover remains with Persephone to allow Percy's mother to leave. Percy, Annabeth, and Sally teleport to the Empire State Building but are attacked by Luke, who wants to destroy Mount Olympus to secure the demigods' place as the new rulers of the gods. After a fight across Manhattan, Percy defeats Luke and returns the lightning bolt to Zeus, who forgives Percy and allows Poseidon to briefly speak with his son. The film ends with Percy and Annabeth reuniting with Grover, who has grown horns (though only small ones), meaning he is a senior protector, and returning to the camp to continue their training.
In a post-credits scene, Gabe is being kicked out of Sally's house. He finds a note from Percy warning him not to open the fridge. Angrily ignoring it, he opens the fridge only to be petrified by Medusa's head.
