After a repeat of the scene where Erik’s powers first activate in 1944, he’s brought before Klaus Schmidt, a Nazi scientist researching mutants. When Erik is unable to duplicate his feat, Schmidt has his mother brought in and murders her, and in his resulting rage Erik crushes everything metal in the office. At the same time, a young Xavier discovers Raven Darkholme, the girl who will become Mystique, breaking into his house. He’s delighted to find out there are other people with mutant powers and invites her to stay.
In 1962, Erik finally gets a solid lead on Schmidt after nearly two decades burning for revenge, with a bank trafficking stolen Polish gold from the camps. He tortures the manager by ripping out a metal filling and gets a location in Argentina, where he easily dispatches more escaped Nazis and gets Schmidt’s location.
CIA agent Moira MacTaggart is researching a supposed Communist cell called the Hellfire Club, and sneaks in as part of the female company for its clients. She’s shocked to discover NATO Colonel Robert Hendry meeting with the Club’s leader Sebastian Shaw, who pressures him into placing nuclear missiles in Turkey, using his mutant associates the telepath Emma Frost, teleporter Azazel, and wind-creating Riptide. Her superiors don’t believe her report, so she goes after Xavier, now the world’s foremost expert on mutations and still living with Raven, who is ashamed of her true appearance and spends most of her time disguised as a normal human.
Shaw learns his scheme has leaked and meets again with Hendry, who threatens to kill them all with a grenade if he doesn’t get the money he was promised. Shaw reveals he’s also a mutant as he absorbs the explosion’s energy and redirects it all at Hendry, killing him.
Moira brings Xavier and Raven to meet the CIA leaders, and upon showing their powers, one agent known as the Man in Black reveals he’s been researching mutants for years and offers to create a whole division for them. First they go after Shaw, who is in fact Schmidt having used his power to regain his youth, and Erik arrives on his boat at the same time. He’s quickly knocked off by Emma’s other power of diamond-hard skin, but sinks the boat with its anchor. Shaw and Emma flee in an attached submarine which Erik tries to control, but it’s too big for him and he starts drowning until Xavier dives next to him and convinces him to let go.
The Man in Black introduces the new team to Hank McCoy, who at this point appears human except for his hand-shaped feet, and asks for a blood sample from Raven to make a serum to reverse such physical differences. He also reveals his new invention Cerebro, which enables Xavier to find several other mutants for the team: butterfly-winged Angel, survival adapting Darwin, sonic screamer Banshee, and energy ring throwing Havoc. Raven also gives herself the code name Mystique. Along the way they encounter Logan, who curtly declines to join.
Emma senses that Xavier is recruiting mutants, so Shaw sends her on the plan’s next phase alone while he deals with the team. Emma meets a Soviet general and tricks him into thinking they’re having sex, but is interrupted by Xavier and Erik. Xavier’s power can’t penetrate her diamond form, but Erik chokes her with the metal bedframe until she relents and they discover Shaw’s plan to cause the Cuban Missile Crisis and wipe out humanity so mutants will take over the world.
Shaw attacks the base and easily kills all the human staff, including the Man in Black. He offers the mutants to come with him and Angel accepts. Darwin also pretends to go as a ruse to get her back, but Shaw overcomes the attack and kills him with the energy of Havoc’s rings which he can’t adapt to in time. Xavier wants to disband the program, but Erik convinces him they need to make the remaining mutants into their own army like Shaw’s, and they set up in Xavier’s old house, the future School for the Gifted.
Over the next week, everyone trains to improve their mutant abilities, including Banshee getting a wing suit that he can control with his screams to fly. Erik also convinces Mystique to accept her true form, but Hank still insists on developing his cure for their appearance. Then when he takes it, it only mutates him into his familiar apelike form as the Beast.
The team heads to Cuba where the American navy is prepared to open fire on any Soviet ships that cross into their territory. Azazel kills the crew of one ship to force it over, but Xavier takes over another ship’s officer to launch a missile at it. Banshee then uses his scream as a sonar pulse to locate Shaw’s sub, and Erik is now able to raise it onto a nearby island after learning to access his abilities without anger. As the others fend off his henchmen, Erik confronts Shaw and ultimately disobeys Xavier and kills him by agonizingly pushing the coin from their old tests slowly through his head, using an anti-telepathy helmet Shaw got from the Soviets to keep Xavier from stopping him.
Both the American and Soviet ships turn on the mutants, and Erik takes the opportunity to win over Shaw’s team to his side against humanity with this demonstration of how they’ll never be accepted. He takes control of all the missiles fired toward them, and Moira ends up shooting at him to distract him, with one of the deflected bullets accidentally hitting Xavier in the spine and paralyzing him. This causes Erik to stop the attack and leave with his new team, including Mystique at Xavier’s consent.
Xavier decides to continue his work and find more mutants he can help and win to his side, while the newly named Magneto breaks into CIA headquarters and frees Emma to join the others, setting the stage for their long rivalry.
