Sam (Noah Wiseman) is a troubled six-year-old boy terrified of monsters. He vows to protect his mother and builds weapons and talks about monsters constantly.
His mother, Amelia (Essie Davis), still grieving the death of her husband on the day Sam was born, is having trouble coping with his behaviour. Sam finds a picture book about a monster called The Babadook and becomes obsessed with it, believing The Babadook is stalking them. Amelia insists The Babadook isn't real and destroys the book.
The book reappears at the house with new pages showing a woman breaking a dog's neck, strangling a little boy, then slitting her own throat. Sinister things begin occurring and the exhausted and stressed Amelia goes mad. She has a vision of her late husband telling her they can be together if "you bring me the boy". Amelia kills their dog and tries to strangle Sam. Sam uses his weapons and booby-traps to overpower his mother, and ties her up. He tells her she let The Babadook in and now she has to let it out. She seizes and vomits up bile, then regains possession of herself.
The Babadook reappears and attacks Sam. Amelia confronts it and threatens to kill it if it hurts Sam. The Babadook collapses, then flees into the basement.
Two weeks later, Amelia and Sam are both recovered and happy. The Babadook remains in the basement and Amelia feeds it worms. The audience is left to decide if it's a real demon or a metaphor for her pain.