Larry Talbot (Lon Chaney Jr.) returns to his ancestral home in Llanwelly, Wales to bury his recently deceased brother and reconcile with his estranged father, Sir John Talbot (Claude Rains). While there, Larry falls in love with a local girl named Gwen Conliffe (Evelyn Ankers) who runs an antique shop. As an excuse to talk to her, he purchases a walking stick decorated with a silver wolf's head, and Gwen tells him that it represents a werewolf (which she defines as a man who changes into a wolf "at certain times of the year".) Various villagers recite a poem whenever the subject of werewolves comes up:

Even a man who is pure in heart, and says his prayers by night;

May become a wolf when the wolfsbane blooms and the autumn moon is bright.

Later that night, Larry attempts to rescue Gwen's friend, Jenny, from what he believes to be a sudden wolf attack. He kills the beast with his new walking stick but is bitten on the chest in the process. A Romani fortuneteller named Maleva (Maria Ouspenskaya) reveals to Larry that the animal which bit him was actually her son Bela (Bela Lugosi) in the form of a wolf. She also reveals that Larry will transform into a wolf as well since he who is bitten by a werewolf and lives will turn into one himself. From her, Larry learns that silver is the only thing that can kill a werewolf.

Just like Maleva warned, Larry transforms into a werewolf on the following full moon and kills several villagers. He returns to normal the next morning initially with no memory of his rampage, but the recollection of his crimes gradually returns to him, leaving him horrified and wracked with guilt. The night of the next full moon, he begs his father to restrain him to prevent him from hurting anyone else. Nevertheless, he becomes a werewolf once again, breaks free of his restraints, and attacks Gwen. Seeing that his son is doomed to become a werewolf and kill innocent people as long as he lives, Sir John reluctantly puts Larry out of his misery by bludgeoning him over the head with his own silver-headed cane. The movie ends with Sir John and Gwen then watch in horror as the dead werewolf transforms into Larry's human corpse.