In 1845, James Howlett (Troye Sivan), a young boy living in Canada, sees his father killed by groundskeeper Thomas Logan. The trauma activates the boy's mutation: bone claws protrude from his hands, and he kills Thomas, who reveals that he is James's real father. James flees along with Thomas's son Victor Creed, who is thus James's half-brother. They spend the next century as soldiers, fighting in the American Civil War, both World Wars, and the Vietnam War. In Vietnam, Victor kills a senior officer. James defends Victor and the two are sentenced to execution by firing squad, which they survive. Major William Stryker approaches them in military custody, and offers them membership in Team X, a group of mutants including Agent Zero, Wade Wilson, John Wraith, Fred Dukes, and Chris Bradley. They join the team for a few years, but the group's disregard for human life causes James to leave.
Six years later, James, now using the alias Logan, works as a lumberjack in Canada, where he lives with his girlfriend Kayla Silverfox. Meanwhile, with Team X disbanded, Bradley has also taken up a different life at a carnival in Springfield, until Victor comes to visit him. Back in Canada, Stryker and Zero approach Logan at work. Stryker reports that Wade and Bradley have been killed, and he thinks someone is targeting the team's members. Logan refuses to rejoin Stryker, but after finding Kayla's bloodied body in the forest, Logan realizes Victor is responsible, and finds him at a local bar. Logan loses the subsequent fight. Afterward, Stryker explains that Victor has gone rogue, and offers Logan a way to become strong enough to get his revenge. Logan undergoes a painful operation to reinforce his skeleton with adamantium, a virtually indestructible metal. Once the procedure is complete, Stryker attempts to betray Logan by ordering that his memory be erased. Logan overhears this and escapes to a nearby farm, where a kind elderly couple take him in. Zero kills them the following morning, and tries to kill Logan. But Logan brings down Zero's helicopter, killing him, and swears to kill both Stryker and Victor.
Logan locates John and Fred at a boxing club. Fred explains that Victor is still working for Stryker, hunting down mutants (among them teenager Scott Summers) for Stryker to experiment on at his new laboratory, located at a place called "The Island". Fred mentions Remy "Gambit" LeBeau, who escaped from the island and therefore knows its location. John and Logan find LeBeau in New Orleans, then both fight Victor, who kills John and extracts his DNA. Agreeing to help release mutants that Stryker has captured, Gambit takes Logan to Stryker's facility on Three Mile Island. Logan learns that Kayla is alive, having been coerced by Stryker into keeping tabs on him in exchange for her sister's safety. However, Stryker refuses to release her sister and denies Victor the adamantium bonding promised for his service, due to test results revealing Victor won't survive the operation. Stryker activates Wade, now known as Weapon XI, a "mutant killer" with the powers of multiple mutants: Logan's healing power, John's teleportation, Summers' optic blasts, and Wade's swordsman skills; Bradley's electropathy was used to enable Stryker to control him completely. Stryker refers to Weapon XI as the "Deadpool".
While Logan and Victor join forces to fight Deadpool, Kayla is wounded leading the Island's captive mutants to safety; the mutants are subsequently rescued by Professor Charles Xavier. Logan decapitates Deadpool, destroying one of the cooling towers in the process. Stryker arrives and shoots Logan in the head with adamantium bullets, rendering him unconscious. Before he can shoot Kayla, she grabs him and uses her mutant power to persuade him to turn around and walk away until his feet bleed. Logan regains consciousness but has lost his memory; he sees Kayla's body but doesn't recognize her, and leaves the island.
In a mid-credits scene, a weary Stryker is being detained for questioning by some MPs in connection to the death of his superior, General Munson (whom Stryker did in fact kill earlier after Munson's declaration of his intent to shut down the former's project).