Freddy Krueger, now powerless in Hell as the adults of Springwood have gone to extremes to make sure their children have forgotten about him, uses his remaining powers to resurrect Jason Voorhees. Freddy appears to Jason in the form of his mother to manipulate him into killing the teens of Springwood to create fear, allowing Freddy to regain his strength as the adults will assume he has returned.
Meanwhile, Lori Campbell, who lives with her widowed father, has a sleepover with her friends Kia and Gibb. They are later joined by Trey, Gibb's emotionally abusive boyfriend, and his friend Blake. Jason enters the house and murders Trey, and the police suspect Freddy. After a nightmare, Blake awakens to find his father killed by Jason, who then kills Blake himself. The police call it a murder–suicide the following day, hoping to conceal Freddy's return from the rest of the town.
Elsewhere, Lori's ex-boyfriend Will Rollins and his friend Mark Davis, forcibly institutionalized at the Westin Hills Psychiatric Hospital with others, are made to take Hypnocil to suppress their dreams because of their previous contact with Freddy. A news report about the Springwood killings prompts them to escape and return to the town to warn Lori about Freddy. That night, Lori and the others attend a rave in a cornfield. Freddy tries to kill Gibb in a nightmare but Jason kills her first in the real world after attacking the rave, angering Freddy.
Will, Lori, and Kia escape the rave with school nerd Charlie Linderman and stoner Bill Freeburg. After dropping off the latter three and a confrontation with Dr. Campbell (who was responsible for having Will and Mark committed to Westin Hills) over Will's certainty that he saw Lori's father murder her mother, Will and Lori head to Mark’s house, only to see Mark get killed by Freddy. Deputy Scott Stubbs, believing Jason is a copycat, makes contact with Lori and her friends, who deduce Freddy's plan. Learning about Hypnocil, they try to steal it from Westin Hills; however Freddy possesses Freeburg, using him to dispose of the medicine. Jason then arrives and kills Stubbs, however Freddy uses the possessed Freeburg to tranquilize Jason, causing him to fall asleep after killing Freeburg.
The teens devise a plan to pull Freddy from the dream world into reality and force him to fight Jason, bringing the unconscious Jason to the now-abandoned Camp Crystal Lake. Freddy fights Jason in the dream world, where he discovers that Jason has a fear of water as a result of his death by drowning. He uses water to make Jason powerless, however Lori goes to sleep in order to pull Freddy out and save Jason. As Freddy tortures Lori in the dream world, revealing he murdered her mother, Jason awakens at the real Camp Crystal Lake and pursues the teens, killing Linderman. Lori is awakened and pulls Freddy into the real world, where he is confronted by Jason, who figures out Freddy has a fear of fire, a result of his death by burning and uses the flames of the Burning cabin to his advantage.
Freddy and Jason fight throughout the campgrounds, with Jason killing Kia in the process and tearing Freddy's gloved arm off. Lori and Will set the dock on fire, making propane tanks explode and throwing Freddy and Jason into the lake. Freddy climbs out and tries to kill Lori and Will with Jason's machete, but he is impaled by a wounded Jason with his own clawed arm, allowing Lori to decapitate Freddy with the machete. Jason and Freddy's headless body sink into the lake, both seemingly dead. After throwing the machete into the lake, Lori and Will leave the scene.
The following morning, a victorious Jason emerges from the water, holding his machete and Freddy's severed head. Freddy's head suddenly winks at the camera as his laughter is heard in the background, implying he will return.
