In Thebes, Egypt, 1290 BCE, high priest Imhotep has a love affair with Anck-su-namun, the mistress of Pharaoh Seti I. Imhotep and Anck-su-namun kill Pharaoh after he discovers their affair. Imhotep flees, while Anck-su-namun kills herself, believing that Imhotep would be able to resurrect her. Imhotep and his priests steal her corpse and travel to Hamunaptra, the city of the dead, but the resurrection ritual is stopped by Seti's bodyguards, the Medjai. Imhotep's priests are all mummified alive, while Imhotep is sentenced to suffer the Hom Dai, the worst of Egyptian curses: his tongue is cut out, and he is buried alive with flesh-eating scarab beetles. He is sealed away in a sarcophagus at the feet of a statue of the Egyptian god Anubis and kept under strict surveillance by the Medjai, sworn to prevent Imhotep's return.

In 1926, Jonathan Carnahan presents his sister Evelyn—a librarian and aspiring Egyptologist—with an intricate box and map that lead to Hamunaptra. Jonathan reveals he stole the box from an American adventurer, Rick O'Connell, who discovered the city three years earlier while in the French Foreign Legion. Evelyn and Jonathan find Rick and make a deal with him to lead them to the city.

Rick guides Evelyn and her party to the city, where the group encounters a band of American treasure hunters led by Rick's cowardly acquaintance Beni Gabor, who'd previously left him to die at Hamunaptra. The expeditions are confronted several times by the Medjai, led by the warrior Ardeth Bay. Despite being warned to leave, the two expeditions continue to excavate. Evelyn searches for the famous Book of Amun-Ra, a book made of pure gold. However, instead of finding the book, she stumbles upon Imhotep's remains. The team of Americans, meanwhile, discover the black Book of the Dead, accompanied by canopic jars carrying Anck-su-namun's preserved organs.

At night, Evelyn takes the Book of the Dead and reads a page aloud, accidentally awakening Imhotep. The expeditions return to Cairo, and Imhotep follows them with the help of Beni, who has agreed to serve him. Imhotep returns to full strength by killing the members of the American expedition and brings the ten plagues back to Egypt.

Seeking a way to stop Imhotep, Rick, Evelyn, and Jonathan meet Ardeth at a museum. Ardeth hypothesizes that Imhotep wants to resurrect Anck-su-namun by sacrificing Evelyn. Evelyn believes that if the Book of the Dead brought Imhotep back to life, the Book of Amun-Ra can kill him again, and deduces the book's whereabouts in Hamunaptra. Imhotep corners the group with an army of slaves. Evelyn agrees to accompany Imhotep if he spares the rest of the group. Although Imhotep goes back on his word, Rick and the others fight their way to safety.

Imhotep, Evelyn, and Beni return to Hamunaptra, pursued by Rick, Jonathan, and Ardeth, who are able to locate the Book of Amun-Ra. Imhotep prepares to sacrifice Evelyn, but she is rescued after an intense battle with Imhotep's mummified priests. Evelyn reads from the Book of Amun-Ra, making Imhotep mortal, and he is fatally wounded by Rick.

While looting treasure, Beni accidentally sets off a booby trap and is trapped by a swarm of flesh-eating scarabs as Hamunaptra collapses into the sand. Ardeth bids Rick, Evelyn, and Jonathan goodbye, and the trio rides off into the sunset on a pair of camels laden with Beni's treasure.