The prologue reveals that the Dark Lord Sauron has forged the One Ring, which he can use to conquer the realm of Middle-earth. In response to this danger, a Last Alliance between Men and Elves is formed to counter Sauron and his forces. They engage Sauron's army in a fierce battle in at the foots of Mount Doom but after Sauron himself appears, the battle turns against their favour. During the battle, Isildur grabs the broken sword Narsil, and slashes at Sauron's hand, separating him from the Ring and vanquishing his army. However, because Sauron's life is bound in the Ring, he is not completely defeated until the Ring itself is destroyed. Isildur takes the Ring and succumbs to its temptation, refusing to destroy it, but on his way to Rivendell he is ambushed and killed by a group of orcs. The Ring is found centuries later by the creature Gollum, but he loses it to the hobbit Bilbo Baggins. Bilbo returns to his home in the Shire with the Ring, and the story jumps forward in time sixty years. Gandalf the Grey, a wizard and close friend of the hobbits, arrives in the Shire to help prepare for Bilbo's birthday party. Unbeknownst to everyone except Gandalf and Bilbo's nephew Frodo Baggins, Bilbo has decided to leave the Shire, and at his party he suddenly disappears, using the Ring to make himself invisible. Gandalf intercepts him at his house before he leaves; he has become suspicious of Bilbo's attachment to the Ring. His suspicions are confirmed when Bilbo expresses an angry reluctance at giving up the Ring, but Gandalf persuades him to let it go, and Bilbo leaves the Shire. Gandalf decides to head to Minas Tirith to determine the nature of the Ring, but before he goes he leaves the Ring in Frodo's possession. At Minas Tirith, the wizard learns that Bilbo's Ring is in fact the One Ring, which Sauron is seeking to regain, and heads back to the Shire to warn Frodo. He instructs Frodo to leave and head for Bree, and determines it would be best if he took his best friend Samwise Gamgee with him. Meanwhile, Gandalf heads to Isengard to seek advice from the head of his council, Saruman. However, Saruman reveals that he has allied with Sauron, and he is breeding his own army of orcs with the intent of ruling Middle-earth himself. Saruman takes Gandalf prisoner after he refuses to join him.
Frodo and Sam are soon joined by fellow hobbits Merry and Pippin. After encountering one on the road, the hobbits learn they are being hunted by the Nazgūl, or Ringwraiths, servants of Sauron looking for the Ring. They manage to reach Bree, and there they meet a Man called Strider, who agrees to lead them to Rivendell. After some travelling, they spend the night on the hill of Weathertop, where they are attacked by the Nazgūl at night. Strider fights off the Ringwraiths, but Frodo is grievously wounded, and they must quickly get him to Rivendell for healing. While chased by the Nazgūl, Frodo is taken by the half-elf Arwen to the elven haven of Rivendell, and healed by her father Elrond.
In Rivendell Frodo meets Gandalf, who explains how he was rescued by one of the Eagles from his imprisonment on Saruman's tower. Elrond calls a council to decide what should be done with the Ring. The Ring can only be destroyed by throwing it into the lava of Mount Doom, where it was forged, but Mount Doom is located in Mordor, near Sauron's fortress of Barad-dūr. Frodo volunteers to take the Ring to Mount Doom. He will be accompanied by his hobbit friends and Gandalf, as well as Strider, who is revealed to be Aragorn, the rightful king of the Mannish realm of Gondor. Also traveling with them will be the Elf Legolas, the Dwarf Gimli, and Boromir, the son of the steward of Gondor. Together they comprise the Fellowship of the Ring.
The Fellowship set out and try to pass the mountain Caradhras, but they are stopped by Saruman's wizardry. They are forced to travel under the mountain through the Mines of Moria. After journeying through the mines and defeating several enemies, including Moria orcs and a cave-troll, the Fellowship encounter a Balrog at the Bridge of Khazad-dūm. Gandalf confronts the Balrog on the bridge, allowing them to escape the mountain, but he falls with the creature into the abyss below. The group flees to the elven realm of Lothlórien, where they are sheltered by its rulers, Galadriel and her husband Celeborn. After resting, they decide to travel on the River Anduin towards Parth Galen. Before they leave, Galadriel gives Frodo the Phial of Galadriel, and Celeborn warns Aragorn that they are being tracked by Saruman's orcs. After landing at Parth Galen, Boromir tries to take the Ring from Frodo, who manages to escape by putting on the Ring. Knowing that the Ring's temptation will be too strong for the Fellowship, Frodo decides to leave them and go to Mordor alone. Meanwhile, the rest of the Fellowship are attacked by orcs. At the end of the battle, Boromir is mortally wounded by the orc commander Lurtz, and Merry and Pippin are captured. Aragorn, Legolas, and Gimli decide to pursue the orcs and rescue the hobbits. Sam joins Frodo before he leaves, and together the two head to Mordor.