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The film begins with the retirement of Schmidt from his position as an actuary in an insurance company in Omaha, Nebraska. Schmidt finds it hard to adjust to his new life and feels useless. One evening, he is watching a television advertisement about a foster program for African children. He enters the sponsorship program and soon receives an information package with a photo of his foster child, a small Tanzanian boy named Ndugu, to whom he relates his life in a series of self-centered letters. The main narrative of the film follows Schmidt as he goes on a road trip in order to attend the wedding of his only daughter to a man and family he doesn't particularly like.

Schmidt retires from his job at the Woodmen of the World insurance company in Omaha, and is given a blandly impersonal retirement dinner at a local steakhouse. He visits his young successor's office to offer his help, but he is impatiently rejected and ushered back out the door. As Schmidt leaves the building, he sees the contents and files of his office in the basement, set out for garbage collectors.

Schmidt describes to Ndugu his longtime alienation from his wife, who suddenly dies from a blood clot in her brain just after his retirement and their purchase of a Winnebago motor home. His friends and his only daughter Jeannie and her fiance Randall Hertzel arrive from Denver and briefly console him at a funeral disrupted by arguments over money and the casket. Jeannie intends to marry Randall, a union opposed by Schmidt, who feels Randall, a water-bed salesman, is mediocre and unsuited to his daughter. Randall recommends the book "When Bad Things Happen to Good People" by Harold Kushner to Schmidt and then tries to entice him into a pyramid scheme. After the couple returns to Denver, Schmidt is again left alone.

Living alone, Schmidt stops washing, is shown sleeping and waking in front of the television, eating the entire contents of the kitchen, and going outside with a coat over pajamas to load up on frozen foods in the supermarket. (In what may be a satire or metaphor for an American lifestyle, the Winnebago strangely seems to be his only vehicle). In a closet he discovers some hidden love letters disclosing his wife's long-ago affair with a mutual friend, whom Schmidt angrily confronts. He decides to take a journey alone in his new Winnebago to see his daughter and convince her not to marry. When he phones her to tell her he is coming a few weeks earlier than planned, she insists that he only arrive shortly before the wedding.

Schmidt then decides to travel to places of his past, and finds his childhood home in a small town has been replaced by a tire shop; he visits his former college fraternity house, and a small museum. While at a trailer campground, he is a dinner guest of a friendly and sympathetic couple there, but is thrown out after he makes a pass at the wife afterwards. Schmidt arrives in Denver shortly before his daughter's wedding, stays there with her fiance's mother, and wakes after a night in a water bed with severe pain and immobility in his back and neck. He meets her fiancé's family and tries to dissuade her from the marriage. She and her fiancé argue. The family's dinner conversation is ruined by ridicule and obscene language. Schmidt is incapacitated after sleeping on a waterbed, and flees after the groom's overweight mother makes a pass at him in a hot tub. Schmidt attends the wedding and delivers a kind speech at the wedding dinner, hiding his disapproval. After the speech, he leaves to use the bathroom.

When he returns home to Omaha, his narrative to the orphan Ndugu questions what he has accomplished in life. Schmidt laments that he will soon be dead and that no one will remember him. A pile of mail is waiting for him inside the empty house. Schmidt opens a surprise letter from Tanzania. It is written by a nun who cares for Ndugu, and she writes briefly but warmly that Ndugu is illiterate but enjoys Schmidt's letters and financial aid very much. With the financial aid, Ndugu was able to receive much needed medical care. The little boy's hand-drawn picture is enclosed, showing two smiling stick figures, one large and one small, holding hands in the blazing sun. Schmidt weeps with emotion and the film ends.

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