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The movie starts out as we see a young kid laying in bed, frightened while looking at his closet door. Next thing you know, a monster is standing beside him. The boy sits up and the scared monster screams, trips and falls. Suddenly, alarms go off, lights come on, and we discover that it is a scaring practice going on in the training room of Monster, Inc, the power company of Monstropolis. The head of the power company is Mr .Waternoose (James Coburn). He is training new monsters to scare kids. It seems that Monstropolis gets all it's power from screams, and he has a whole squad of monsters whose job it is to scare kids at night and collect their screams.
It's a very complicated system they have for collecting the screams. They have a warehouse full of closet doors, and they call up a particular door for whichever room they want. The door is sent by a hanging conveyor belt and placed in front of the Monster on the "scare floor." When the door is opened, the monster is in another room in another part of the world. If for any reason there is a problem with that particular room, the door is shredded.
One other thing... Monsters are actually more scared of the human kids than the kids are of them. If any part of the human world enters the monster world, the CDA (Child Detection Agency) comes in and decontaminates the place and monster bringing it in.
The top scarer is James P. "Sulley" Sullivan (John Goodman). He is the best in the business. With the help of his assistant Mike (Billy Crystal), they are about to break the record for most screams collected. In 2nd place on the list is Randall (Steve Buscemi). He will stop at nothing to be in first place. One night, Mike is in a hurry to get out since he has a date with Celia (Jennifer Tilly). He forgets to finish his paperwork, so Sulley says he'll go back in to get it. Sulley goes back to the scare floor and it is deserted, except for one door, which is still on the floor.
Sulley is curious, so he peeks inside the door. Inside is a cute little girl who isn't scared at all of Sulley and in fact, thinks he's cute. Sulley is terrified of her and runs out the door, back to the scare floor. He hears a thumping sound and realizes that the girl , playing with his tail. He shakes her off and runs into the bathroom. When he looks into the mirror, he discovers that the girl is on his back.
Sulley wants to take the girl back to her door, but when he goes back to the scare floor, Randall and his assistant are looking in the door and are upset that the girl isn't there. They send the door back to the door warehouse. Sulley places the girl in a suitcase and heads out to the restaurant to find Mike. He interrupts Mike and Celia's dinner and shows Mike what he has in the suitcase. The girl gets out of the suitcase, and the whole restaurant is in panic. The CDA arrive, and the patrons are screaming and running, terribly afraid of the girl.
Sulley scoops her up and he, the girl (whom he names Boo) and Mike run to their apartment. They try to hide her as the helicopters are searching outside, but whenever she cries, the lights come on. Funny thing though, when she laughs, the lights come on super bright. In fact, she laughs so hard once that she blows the fuse to the building. The next day they put a monster costume on boo and bring her to the factory. Their goal is to find her door and bring her back without anyone noticing. Unfortunately, Randall and his assistant are there also, and they too are looking for Boo. It made the news about Boo and the restaurant, and they are sure it is their fault.
Eventually, Randall convinces Mike that if they bring the girl back to the scream floor, the door will be there waiting for them. Mike tells Sulley this and right before they enter, Sulley figures out that Randall would never help them so it must be a trap of some kind. Mike thinks he's crazy and runs in and starts jumping on Boo's bed. Suddenly, a box comes down and traps Mike inside. Sulley hides as Randall and his assistant take the box to another room in the warehouse.
In that room is a machine that sucks the screams out of children. We have discovered that Randall had planned to kidnap kids and steal all of their screams. Sulley unplugs the machine and takes Mike and along with Boo, run to find Mr.Waternoose. Waternoose is proud of the two of them for discovering Randall's evil plan. The most important thing is however, getting the girl back home. They head to the scare floor and Waternoose calls up Boo's closet door.
Sulley and Mike say that it's the wrong door. Waternoose says he knows... it's not the door for her, it's the door for them and with that he pushes the two through a door that leads them to the snowy peaks of Nepal. They have been banished from Monstropolis. Sulley gets the idea that if they go to the closest town, all they have to do is to find any kids closet and return to Monstropolis.
Sure enough, we cut back to the scare floor and out of a door comes Sulley and Mike. They rush to the secret room and there, trapped in a chair is Boo, about to have her screams sucked out. Sulley destroys the machine, takes Boo and rushes her to the scream floor to find her door. Randall is right on their heels as one of the best chase sequences in a long time takes place. They race from door to door, trying to find a shortcut to Boo's door in the warehouse. Each time they go through a door, they are in another part of the world.
They finally trap Randall in a door that leads to a trailer in the Bayou. The kid in the trailer calls out to his mother that another alligator has come inside and the boy then clubs the "gator". Waternoose chases Sulley and Boo through a door that they think is Boo's. Waterhouse reveals to Sulley that it is actually his plan to kidnap the children. It is the only way the factory can be saved. Suddenly, an alarm sounds and all the lights come on. They aren't in Boo's room after all. They are actually in the training room from the beginning of the film and Waternoose has just confessed in front of everybody.
They are all shocked, and the CDA come and take Waternoose away. The actual head of the company was Monsters Inc's dispatcher Roz. She congratulates Sulley and gets the key to bring Boo's door down. Sulley, who has grown quite fond of Boo, tucks her in her own bed, plays with a few of her toys with her and then goes back to Monstropolis, shutting the door behind him. The door is shredded. The next day the workers are now leaving the factory for the last time. It is being shut down because kids just can't be scared anymore. Sulley suddenly has an idea and races back inside.
The next scene is Mike entering a kids closet door. He sits down in front of the kid and starts doing a standup routine (Remember, it's Billy Crystal). The kid starts laughing and the power generated is enormous. Turns out that a child's laugh has ten times the power of a scream. The factory is saved. Sulley is still sad though. He really misses Boo. Mike has a surprise for him. He has put together all the pieces of the door that were shredded. He tells him that he got all but one piece. Sulley takes out his notebook and hands Mike a piece that he had saved for himself. They power up the door and Sulley enters. Boo is excited and Sulley smiles in delight.