Amelia Vanek is a widow raising her son Samuel after the death of her husband, Oskar, who had perished in an accident while driving Amelia to the hospital. Sam displays a series of erratic behavior, and is convinced that he is being tormented by monsters. As a result, Amelia is forced to take Sam out of school. One night, Amelia reads a book to Sam called Mister Babadook, featuring a supernatural entity that torments whoever becomes aware of its existence.
Strange occurences begin to occur throughout the house, which Amelia attributes to Sam's behaviour. However, he blames the Babadook. Eventually, Amelia destroys the book.
While visiting his cousin Ruby on her birthday, Sam breaks Ruby's nose when she mocks him about his father's death. Amelia's sister, Claire, confesses that she cannot bear to be around Sam. On the drive home, Sam has a vision of the Babadook and suffers a febrile seizure. The following morning, Amelia finds the reassembled book, which taunts her and claims that her denial will only cause the Babadook to grow stronger. The book contains new pages detailing Amelia killing her dog, Sam, and herself. Amelia attempts to convince the police that she is being tormented by a stalker, but they don't believe her. Afterwards, the Babadook possesses Amelia.
Amelia sees a vision of Oskar, who requests that she give Sam to him. A maddened Amelia kills her dog, as the book depicted, and attacks Sam, who stabs her. Sam tells his mother that he'll always love her, giving Amelia the will to fight off the Babadook. She vomits out the entity, and Sam reiterates that she cannot get rid of the Babadook. Amelia then confronts the Babadook and threatens to kill it if it harms Sam. Defeated, the Babadook retreats into the basement.
Amelia and Sam recover from the events, and learn to live with the Babadook, containing it in the basement by feeding it worms. Amelia then celebrates Sam's birthday in the backyard.