Equilibrium is set in the futuristic, and dystopian city-state of Libria. The film explains how, in the early years of the 21st century, a devastating Third World War breaks out, the impact of which brings civilizations across the planet to their knees. After the war ends, world leaders fear that the human race cannot possibly survive a Fourth World War, and so set about building a new society which is free of conflict.

Believing that human emotion is responsible for man's inhumanity to man, the new leaders ban all materials deemed likely to stimulate strong emotions, including art, music, and literature. These materials are rated "EC-10" for "emotional content" (a reference to the MPAA film rating system[2]), and are typically destroyed by immediate incineration. Furthermore, all citizens of Libria are required to take regular injections, called "intervals," of a liquid drug called Prozium, collected at the distribution centers known as "Equilibrium".
 
Libria is governed by the Tetragrammaton Council, which is led by a reclusive figurehead known as "Father". Father never interacts with anyone outside the ruling council, but his image is omnipresent throughout the city in a strong cult of personality. The Tetragrammaton Council strives to create identical lives for all Librians and uses its police state apparatus to enforce unity and conformity. At the pinnacle of Librian law enforcement are the Grammaton Clerics, who are trained in the deadly martial art of Gun Kata, an art which teaches users to predict the actions of opponents during firearm combat. The Clerics exist for the purpose of locating and destroying EC-10 materials and for pursuing, apprehending, and, if necessary, terminating "sense-offenders"—people guilty of feeling emotions.

Despite the efforts of the police and Clerics, a resistance movement exists in Libria, known as "The Underground". Members of this movement are responsible for terrorist activity against Libria, specifically against the Prozium factories. The leaders of the Underground believe that if they can disrupt the production and distribution of Prozium for a short period of time—even a single day—then the Librians will rise up and destroy the Tetragrammaton Council. The Underground operates within Libria itself, but also has contact with resistance groups residing in "The Nethers", the ruins of cities destroyed during World War III. These outsiders hoard objects and artifacts from the old society before World War III, including art and literature. Subsequently, they are the targets of Librian death squads composed of police and Clerics.

The film's protagonist, Grammaton Cleric First Class John Preston, is Libria's highest ranking cleric. He is a widower whose wife, Viviana, was executed after being revealed to be a sense offender, leaving him with two children. After a raid on a group of resistance members in The Nethers, Preston notices that his partner, Grammaton Cleric First Class Errol Partridge, has personally taken a copy of the poems of Yeats under false pretenses. Preston discovers that Partridge has not turned the book over for destruction and follows him to a ruined cathedral in The Nethers, where Partridge speaks of emotion and forces Preston to aid him in suicide by cop. Shortly afterward, Preston accidentally breaks the vial of his morning dose of Prozium and, unable to obtain a replacement due to terrorism closing the equilibrium center, begins to experience emotions.

Preston is assigned a new partner, the career-conscious Brandt. Following a standard police raid on a Librian woman, Mary O'Brien, who has stopped taking Prozium, his emotional confusion is exacerbated during her interrogation. He first acts out of emotion when he makes an excuse not to execute a puppy in The Nethers. Preston has by now ceased taking Prozium and is forced to try and maintain his monotone and emotionless facade in front of his son and the increasingly suspicious Brandt. Over the course of the film, Preston's behavior increasingly mirrors that of Partridge in the beginning, even to the point of repeated dialogue.

Soon, Preston is involved in illegal activities. During one visit to the Nethers, he is forced to kill several Librian policemen who find the rescued puppy in his car. Brandt, having seen Preston re-arranging his desk (signaling a dislike of conformity) and refusing to personally execute resistance members during a raid in the Nethers, becomes suspicious. Preston is summoned before Vice-Counsel DuPont, and explains that he is attempting to infiltrate the Resistance in order to destroy it. DuPont tells him that he has heard rumors of a cleric attempting to join the Resistance, and Preston promises to find this traitor. Finding a clue in Partridge's effects, Preston soon makes contact with the Resistance. He agrees to assassinate Father, an act which will create enough confusion for the Underground to detonate bombs in Libria's Prozium factories and hopefully bring down the Tetragrammaton Council. However, watching Mary O'Brien's execution in Libria's furnaces causes Preston to weep uncontrollably, and Brandt arrests him.

Brandt brings Preston before DuPont; Preston, however, tricks DuPont into believing Brandt was the criminal. Apparently cleared, Preston is released. He returns home to destroy his stashed Prozium before police find it, and is confronted by his young son, who reveals to Preston that he and his sister have not taken Prozium since their mother was executed, and have already hidden his cache of Prozium. As part of an elaborate plot formed with the Underground, the leaders of the Resistance turn themselves in to Preston, on the basis of which he persuades DuPont to grant him an audience with Father.
 
Preston arrives for his audience with Father, and is confronted by Father in a sudden reversal. Via a telescreen, Father speaks to Preston, revealing that he has been aware of Preston's sense-offense, and has staged Brandt's arrest in order to lull Preston into a false sense of security and allow him to think that his assassination scheme can go ahead. The face on the telescreen changes, revealing the face of Vice-Council DuPont, who explains that the real Father died years before, and that the Tetragrammaton Council elected DuPont as the new Head of State.

Preston, however, embarks on a rampage using concealed pistols, shooting his way to DuPont's office, where he kills DuPont's bodyguards in a sword fight. Preston and Brandt face each other, but Preston easily dispatches Brandt and cuts his face off. Preston and DuPont then confront each other with handguns in a battle of Gun Kata masters, during which Preston manages to get the upper hand. Disarmed, Dupont attempts to persuade him, as a fellow feeling human, not to kill him, but Preston recalls O'Brien, and shoots DuPont. Preston then destroys the propaganda machines which broadcast across Libria, and the device which projects holographic images of Father. Realizing that the Tetragrammaton Council is faced with a crisis, the Underground detonates their bombs and the prisoners are released.

The film ends with a riot signaling the destruction of the Librian government.

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