A story is told through a fairy tale book of a lonely princess cursed with a foul enchantment that could only be broken with a lover's kiss. Locked within the confines of a castle guarded by a dragon, the princess awaited the day a knight would free her from both her tower and her curse. It's later shown that this book is actually toilet paper for someone using the bathroom: Shrek.
Shrek is a green ogre who lives in isolation in an unsanitary swamp that is infested with giant slugs, maggots, and ponds of mud while sleeping and eating inside a shack. He avoids contact with human beings, and occasionally has to scare them away with his roars when angry mobs come after him as they ignore his "Beware Ogre" and "Stay Out" signs. One day, fairy tale creatures and animals are being rounded up by an army of knights and being put away in cages. One of them, a talking grey donkey, escapes being caged through fairy dust rubbing off on him and allowing him to fly off a distance that lets him run off. Knights pursue the donkey, but when he takes cover behind Shrek, the knights give up on him. The donkey is grateful to Shrek for saving him, but Shrek's not interested in keeping him for a friend. Shrek also tries scaring him away with a roar, but Donkey simply insults his breath's smell. The donkey insists on staying at Shrek's house for shelter for he is homeless, but Shrek kicks him out and eats dinner alone as the donkey watches in despair.
Suddenly, Shrek finds his dinner table infested with three blind mice, but while trying to catch them seven dwarves place a tomb that has a sleeping princess in it onto his dinner table, and a wolf in a female nightgown is sleeping in his bed. Shrek tries throwing the wolf out, until finding that hundreds of fairy tale creatures are outside his house and some have gotten into his house and locked themselves in, keeping Shrek out of his own house. Shrek demands to know why are they all here ("WHAT ARE YOU DOING IN MY SWAMP?!!"), and they tell him that a dictator named Lord Farquaad has banished them for land development through an eviction notice. Shrek vows to go find Farquaad and demand him to banish the fairy tale creatures somewhere else, but takes Donkey with him because only Donkey knows where Farquaad is.
Lord Farquaad, a short-tempered man with an even shorter figure and Napoleon complex who is the ruler of the land of Duloc, is busy torturing a gingerbread man, Gingy, for locations on any more fairy tale creatures who haven't been rounded up and banished yet. He is very intolerant of fairy tale creatures, but then is told he's not a King yet since he hasn't married a princess. His talking mirror presents him with choices of Cinderella, Snow White (the sleeping princess) and Princess Fiona. Despite Fiona being locked away in a castle guarded by a red dragon, Farquaad chooses her nonetheless but refuses to hear his Mirror tell him that Fiona has a disturbing secret that could interfere with his plans to marry her.
Shrek and Donkey reach the Kingdom of Duloc where they find Farquaad arranging a tournament between knights on who is worthy enough to go on the quest to fight the dragon and save the princess. Before Shrek can argue with Farquaad about his swamp being overrun by the mass multitude of expatriates, Farquaad orders his knights to tackle Shrek in a fight. Shrek ends up winning through sheer strength, and so Farquaad names him the winner. When Shrek complains to him about his swamp problem, Farquaad promises to sign a deed that makes Shrek the sole resident of the swamp and relocate the fairy tale creatures if he goes save Princess Fiona from the dragon. While going to the castle, Shrek is asked by Donkey just why are ogres unpopular and starts comparing them to onions to explain that there's more to ogres than people think.
Upon reaching the castle, Donkey is too scared to cross the very flimsy and weak bridge atop a pit of lava to the castle. Shrek isn't scared at all and simply forces Donkey to cross the bridge first. Donkey is the one who encounters the dragon, who proceeds to attack them with fire as while the dragon helps swing Shrek into a window which is where Fiona is. Fiona is wide awake but she pretends to be asleep. Shrek shakes her up and makes her come with him, ignoring her pleas that they make love first. In the meantime, Donkey easily sweet-talks the dragon into becoming romantically interested in him and he deduces it's a female dragon. As the dragon is about to give the big kiss to Donkey, Shrek intervenes and pulls Donkey out of there. Shrek latches a steel chain around the dragon's neck and tricks her into running around multiple pillars so that the dragon ultimately would be chained up and unable to chase them. The three reach the end of the bridge just as it breaks down, and the dragon is devastated over losing Donkey.
Fiona demands to see Shrek's face so that she can see what her savior looks like, but is horrified to learn that her savior is an ogre. Shrek tells her that Farquaad is the one she has to marry, not him. Fiona insists if that's the case, then Farquaad come get her but Shrek doesn't sit well with that and forcibly drags her away as she kicks and screams until she tires out and accepts being carried away. As Shrek initially intended on bringing her to Farquaad as soon as possible, Fiona demands that they stop to rest for the night and only continue when it's morning again. Shrek obliges by finding a cave for her to sleep in, and Fiona quickly shuts herself inside the cave without letting either of the two men in. Shrek finds Fiona's behavior so off-putting that he tells Donkey that it's not him who hates the world, but rather the world hates him for being an ugly ogre and that when he returns home, he'll continue to enforce his isolation through building up a wall.
After a day of getting to know each other, Shrek and Fiona become increasingly drawn to each other. When sunset comes again, Fiona takes refuge in an abandoned factory building. Shrek develops feelings for her and contemplates proposing his love for her that night. When Donkey comes looking for Fiona, he is disturbed to find a female ogre with the same hair and green gown that Fiona was wearing. Donkey hears Fiona's voice as the ogre speaks and assumes that it's a she-ogre who ate Fiona and cries for Shrek to come help, but it turns out that Fiona is the ogre. Fiona claims that a witch put a spell on her for some reason so that she becomes an ogre who no man will ever love. Fiona mourns, "Who could ever love a beast so hideous and ugly? 'Princess' and 'ugly' don't go together." When Shrek hears this through eavesdropping, he misinterprets Fiona as talking about him instead of herself, so he withdraws from proposing his love to her and storms off to sulk. Donkey tries consoling Fiona for her curse.
The next morning, Fiona is back to her human self and Shrek walks up to her to confront her about her speech he heard last night calling him hideous and ugly. Fiona pretends that Shrek interpreted her correctly, but asks for his "forgiveness." Then Fiona is approached by Farquaad and his knights, and they come to collect her. Farquaad asks Fiona marry him the next day, but Fiona insists that they marry immediately before tonight. Shrek returns to his swamp, now barren of the creatures, heartbroken and this time eats alone in agony. Fiona is visibly unhappy about the marriage, and Donkey is reunited by Dragon who freed herself from the castle. It turns out that the lake Donkey went to go lie down by is actually a pool of tears shed by the dragon herself. Donkey asks Shrek to profess his love for Fiona right away (as Donkey right now is the only one who knows of Fiona's secret), but Shrek refuses to listen until Donkey claims that Fiona was not referring to him as hideous and ugly, and that he misconstrued what she said. Shrek ultimately changes his mind and decides to crash the wedding. They take Dragon as their ride.
Shrek arrives at the chapel shouting "I OBJECT!!" to the wedding between Fiona and Farquaad. Shrek asks Fiona not to marry Farquaad, and Farquaad responds by mocking Shrek for being an ogre who has fallen in love with a human princess. When the sun sets again, Fiona is returned back to her ogre self. Shrek reacts slightly surprised ("That explains a lot"), while Farquaad reacts in disgust and even anger of this. Farquaad decides to have both ogres taken away into captivity, and before Shrek and Fiona can join hands in running away together, they are overwhelmed by Farquaad's knights. Shrek, despite his sheer strength, is unable to take down the dozens of knights as Farquaad threatens to either behead Fiona or lock her back in the tower she came from. Before he can proceed with these plans, Dragon arrives and consumes Farquaad whole, causing Farquaad's knights to flee.
With Farquaad taken care of, Shrek and Fiona are finally able to confess their love to each other and share a kiss. Fiona is suddenly enveloped in a bright light and hoisted into the air as her curse is broken. However, much to her surprise, she has permanently become an ogre. Shrek reassures Fiona that she's still beautiful to him, and all the fairy tale creatures throw a giant celebration for Shrek and Fiona's wedding. The newlywed couple go off on their honeymoon as the book closes on Shrek's fairy tale.
