Charles Lee Ray, the Lakeshore strangler, was shot and injured by Detective Norris in a battle within a local toy store. Lee Ray, not ready to die, transfers his soul into a talking Good Guy doll in hopes of staying alive. Detective Norris finds Lee Ray's body and assumes he has died.

Meanwhile, little Andy's obsession with Good Guy dolls causes his mother to buy him one from a peddler behind the store she works at. Nobody knows that the peddler got the doll from the toy store where Charles Lee Ray was killed, and that the doll is infected with the soul of the deranged serial killer. When Andy opens his present, the doll gives his name as "Chucky". Only little Andy realizes that Chucky is responsible for the gruesome murders that quickly follow.

Soon, Chucky finds out that he is turning human, and if he stays in the doll's body any longer, he'll be trapped in it. And the only way to get his soul back into a human is to transfer it into the first person he told his true identity to. Hmmm, that would be Andy, wouldn't it?