The film begins during a battle of World War I. The protagonist is an unnamed Jewish private (Charlie Chaplin), who is a barber by profession and is fighting for the Central Powers in the army of the fictional nation of Tomainia (an allusion to ptomaine poisoning), comically blundering through the trenches in a tract of combat scenes. Upon hearing a fatigued pilot pleading for help, the private valiantly attempts to rescue the exhausted officer, one Commander Schultz (Reginald Gardiner), as the two board Schultz's nearby airplane and fly off, escaping enemy fire in the nick of time. Commander Schultz reveals that he is carrying important dispatches that could win Tomania the war. However, the plane quickly loses fuel and crashes. Both Schultz and the unnamed private survive. The private's landing is cushioned by a huge pit of wet mud. As medics arrive, Commander Schultz gives them the dispatches, but is told that the war has just ended and Tomania has lost.
The scene cuts to victory celebrations, newspaper headlines, the evacuation and hospitalization of the private, and to a speech given twenty years later by Adenoid Hynkel (cf. Adolf Hitler, also played by Chaplin in a double role), now the ruthless dictator of Tomainia, who has undertaken an endeavor to persecute Jews throughout the land, aided by Minister of the Interior Garbitsch (compare Joseph Goebbels, played by Henry Daniell) and Minister of War Herring (compare Hermann Göring, played by Billy Gilbert). The symbol of Hynkel's fascist regime is the "double cross" (compare the Nazi swastika) and Hynkel himself speaks a dramatic, macaronic parody of the German language (reminiscent of Hitler's own fiery speeches), "translated" at humorously obvious parts in the speech by an overly concise English-speaking news voice-over.
The Jewish private and barber, who had been hospitalized for the past twenty years, having suffered memory loss from the prior plane crash, is blissfully unaware of Hynkel's rise to power and now, at last, returns to his barbershop in the Jewish ghetto, shocked when storm troopers paint "Jew" on the windows of his shop. In the ensuing slapstick scuffle with the stormtroopers, Hannah, (Paulette Goddard), a beautiful resident of the ghetto, knocks both Stormtroopers on the head with a frying pan. The barber finds a friend and ultimately a love interest in Hannah. At one point, the barber is almost lynched by Stormtroopers, but is saved when Commander Schultz, now a high official in Hynkel's government, intervenes.
Meanwhile, Schultz, who has come up in the ranks in the intervening twenty years, recognizes the barber (who is reminded of WWI by Schultz and therefore gets his memory back) and, though surprised to find him a Jew, Schultz orders the storm troopers to leave him and Hannah alone. Hynkel, in addition, has relaxed his stance on Tomainian Jewry in an attempt to woo a Jewish financier into giving him a loan to support his regime. Egged on by Garbitsch, Hynkel has become obsessed with the idea of world domination. In one famous scene, Hynkel dances with a large, inflatable globe to the tune of the Prelude to Act I of Richard Wagner's Lohengrin) at the end of which it suddenly pops in his hands, like a balloon.
On Garbitsch's advice, Hynkel has planned to invade the neighboring country of Osterlich (likely a corruption of Österreich, the German name for Austria) and needs the loan to finance the invasion. Eventually, the financier refuses, and Hynkel reinstates his persecution of the Jews, this time to an even greater extent. Schultz voices his objection to the pogrom and shows his empathy towards Jews; Hynkel denounces Schultz as a supporter of democracy and a traitor, and orders Schultz placed in a concentration camp. Schultz flees to the ghetto and begins planning to overthrow the Hynkel regime.
Schultz, along with the unnamed barber, Hannah, and other members of the Jewish ghetto, meet to discuss their subversive plot. Schultz says that in order to decide who will carry out this plot (which involves a suicide mission to blow up Hynkel's palace), a coin will be placed in one of five puddings, and the person who receives the one with the coin in it is to carry out the mission. However, Hannah, trying to make a pacifistic statement, has placed a coin in every dessert, leading to one of Chaplin's most comical scenes; finally, they all decide it is best to heed Hannah's advice not to attempt the suicide mission. Eventually, however, both Schultz and his barber friend are captured and condemned to the concentration camp.
Hynkel is initially opposed by Benzino Napaloni (a portmanteau of Benito Mussolini and Napoleon Bonaparte, played by Jack Oakie), dictator of Bacteria, in his plans to invade Osterlich. Hynkel invites Napaloni to talk the situation over in Tomainia, however, and attempts to impress Napaloni with a display of military might and psychological warfare, and thus invites Napolini to a military show. The military show turned out to be a disaster. Hynkel's "light artillery" did not arrive. Hynkel's bombers fall from the sky after initially being mistaken for Napaloni's planes. The tanks do arrive, but they totally fail to impress Napaloni, who claims to have tanks that can fly and go under the water. (Herring blusters that they are concentrating on "flying dreadnoughts".) After some friction and a comedic food fight between the two leaders, a deal is made. Hynkel immediately breaks the deal, and the invasion proceeds successfully. Hannah, who has since emigrated to Osterlich to escape Hynkel, once again finds herself living under Hynkel's regime.
Schultz and the barber escape from the camp wearing Tomainian uniforms. Border guards mistake the barber for Hynkel, to whom he is nearly identical in appearance. Conversely, Hynkel, on a duck-hunting trip so that people will not expect an invasion, falls overboard and is mistaken for the barber and is arrested by his own soldiers.
The barber, who has assumed Hynkel's identity, is taken to the Tomainian capital to make a victory speech. Garbitsch, in introducing "Hynkel" to the throngs, decries free speech and other supposedly traitorous and outdated ideas. In contrast, the barber then makes a rousing speech, reversing Hynkel's anti-Semitic policies and declaring that Tomainia and Osterlich will now be a free nation and a democracy.
Hannah, who was previously mistreated by Tomanian police agents looking for the barber, hears the barber's speech on the radio, and is amazed when "Hynkel" addresses her directly: "Hannah, can you hear me? Wherever you are, look up, Hannah. The clouds are lifting. The sun is breaking through. We are coming out of the darkness into the light. We are coming into a new world, a kindlier world, where men will rise above their hate, their greed and brutality. Look up, Hannah. The soul of man has been given wings, and at last he is beginning to fly. He is flying into the rainbow—into the light of hope, into the future, the glorious future that belongs to you, to me, and to all of us. Look up, Hannah. Look up" . Hannah looks up with an optimistic smile.