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In a world where toys pretend to be lifeless in the presence of humans, Woody, a pullstring cowboy toy, is the leader of a group of toys that are owned by a boy named Andy Davis. With his family moving away one week before his birthday, Andy is given a week-early party to spend with his friends, while the toys stage a reconnaissance mission to discover Andy's new presents. Andy receives a spaceman action figure named Buzz Lightyear, whose impressive features see him replacing Woody as Andy's favorite toy. Woody gets jealous, especially when he notices that Buzz also gets attention from the other toys. However, Buzz believes himself to be a real space ranger on a mission to return to his home planet, while Woody tries to convince him that he is just a toy.

As Andy prepares for a family outing at Pizza Planet, his mother allows him to bring only one toy along. Fearing Andy will choose Buzz, Woody attempts to trap Buzz behind a desk, but the plan ends in failure when Woody accidentally knocks Buzz out the window, resulting in the other toys turning against Woody by accusing him of eliminating Buzz out of jealousy. Now that Buzz is missing, Andy reluctantly takes Woody to Pizza Planet, but Buzz climbs into the car and confronts Woody when they stop at a gas station. As they argue, they fall out of the van, which drives off and leaves them behind. While Buzz still believes he is a real space ranger, Woody spots a Pizza Planet delivery truck and convinces him that it can take him to a spaceport. As Woody looks for Andy at Pizza Planet, Buzz sees a rocket-shaped skill game and jumps inside, mistaking it for a real spaceship. Woody follows him in it, but Andy's toy-abusing neighbor, Sid Phillips, arrives and operates the machine, maneuvering the claw to snag Buzz and Woody who are then taken to his house.

At Sid's house, Woody and Buzz try to escape before Andy's moving day, encountering Sid's abused toy creations and his vicious bull terrier Scud. During an attempt, Buzz sees a commercial for Buzz Lightyear action figures and realizes that he is actually a toy himself. Disbelieving, he attempts to prove that he could fly, but falls and crashes down the stairs, breaks his left arm off and becomes depressed. Woody sees Andy's other toys from a distance, but fails to convince them that Buzz is alive. After Sid's toys fix Buzz's arm to Woody's surprise, Sid decides to blow up Buzz with a firework rocket, but a thunderstorm delays the plan. That night, Woody tells Buzz that he can bring joy to Andy as a toy, reinvigorating his spirit. The next morning, Woody and Sid's toys rescue Buzz and scare Sid into no longer abusing toys by coming to life in front of him. Woody and Buzz then leave Sid's house just as Andy's mother drives away toward their new house.

They manage to climb onto the moving truck, but Scud chases after them and tries to pull Woody off the truck. Buzz tackles the dog and is left behind. Woody tries rescuing Buzz with Andy's RC car, but the other toys, still thinking Woody is eliminating fellow toys, attack the cowboy and toss him off the truck. Having evaded Scud, Buzz and RC pickup Woody and continue after the truck. Upon seeing Woody and Buzz together on RC, the other toys realize their mistake and try to help them get back aboard but RC's batteries become depleted, stranding them. Woody ignites the rocket on Buzz's back and manages to throw RC into the truck before they soar into the air. Buzz opens his wings to free himself from the rocket before it explodes, gliding with Woody to land safely into a box in the van, right next to Andy.

On Christmas Day, at their new house, Woody and Buzz stage another reconnaissance mission to prepare for the new toy arrivals. As Woody jokingly asks what might be worse than Buzz, they discover Andy's new gift is a puppy, and the two share a worried smile.