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The movie opens with a young kid laying in bed, frightened while looking at his closet door. Next thing he knows, beady red eyes appear from under his bed and a monster stands beside him, snarling while showing his claws. The boy screams, which causes the monster to scream. This is revealed to be a training simulation inside Monsters Incorporated, an energy factory in a city of monsters called Monstropolis. Monsters Inc is dedicated to monsters travelling into human children's bedrooms through their closet doors and scaring them to harvest their screams for energy. Monsters are led to believe that human children are deadly toxic, so the job is considered highly dangerous. The Chairman and Chief Executive CEO of the company is a crab-like monster named Henry J. Waternoose.

Monster Inc's top scarer is a blue-furred monster named James P. Sullivan, or "Sulley," whose partner is his best friend and roommate, a green one-eyed round monster named Mike Wazowski. In second place is Randall Boggs, a lizard-like monster with the ability to change his skin to blend in with his surroundings. Randall is determined to take the number one spot from Sulley. Mike's girlfriend is Celia, another one-eyed monster with snakes for hair who works at Monsters Inc as a receptionist.

As Mike and Sulley walk to work, they talk about the city's scream shortage. It's Celia's birthday, and Mike has reservations for the two of them at a fancy restaurant called Harryhausen's after work. However, after work, Mike is reminded by Roz, the administrator of the scare floor, that he forgot to finish his paperwork. Sulley offers to stay behind and finish it so Mike can go on his date. When Sulley gets to the scare floor, he finds a lone door with flowers on it.

Sulley looks inside the door before finding a human girl standing behind him. He tries to put her back in her room, but she keeps following him out. Randall, the one who summoned the door, sends it back to the door vault when he can't find the girl. Sulley takes the girl in a gym bag and runs to Harryhausen's to tell Mike. The girl escapes and sends the whole restaurant into a frenzy. The Child Detection Agency (CDA) arrives and detains Celia while Mike and Sulley make it back to their apartment with the girl. The girl eventually starts crying, but after Mike makes her laugh, she overpowers the entire building.

Sulley starts to realize the girl isn't toxic or dangerous and nicknames her "Boo," due to her habit of saying the word. He gets the idea to disguise her as a monster and go back to the factory to put her through her door, despite Mike's protests. When they get to the factory, they find it filled with CDA agents. Mike tries to get the key card for Boo's door from Roz, but she refuses due to Mike's paperwork having not been filed. In the bathroom, Mike and Sulley overhear Randall talking about the kid being loose and some sort of machine.

Mike tries sending Boo through any random door, but Sulley refuses before realizing Boo has wandered off again. Celia shows up and yells at Mike for a horrible date, which Randall overhears and deduces Mike was at the restaurant. He makes a deal with Mike that he'll bring Boo's door during lunch time when the scare floor is empty.

Sulley finds Boo and he and Mike make it to the scare floor, where Boo's door is. When Mike mentions Randall, Sulley refuses to go through with the plan. Mike goes into Boo's room to prove it's fine, only to be put in a box by Randall. Randall takes Mike to a hidden basement, where he reveals a machine called the Scream Extractor. Sulley breaks Mike free and decides to tell Mr. Waternoose.

Sulley attempts to tell Waternoose what happened, but Waternoose orders him to give a scare demonstration at the recruits' insistence. Sulley reluctantly does so, but unintentionally frightens Boo. After the recruits leave, the terrified Boo accidentally reveals herself, much to Waternoose's shock.

Waternoose reveals he's in on Randall's scheme and banishes Mike and Sulley to the human world in the Himalayas, where they find the Abominable Snowman. He tells them about a village at the bottom of the mountains, which Sulley decides to go to in order to get back to Monstropolis while Mike, having become bitter towards Sulley, decides to not go with him.

Sulley makes it to the village and back to Monstropolis. He rushes to the basement, saves Boo and grabs the card for her door. Randall turns invisible and chokes him, but Mike shows up and apologizes to Sulley before hitting Randall with a snowball, revealing his face and allowing Sulley to punch him. As they're making their way to the Scare Floor, Mike tells Celia everything that's been happening, and she helps slow Randall down by announcing he's broken the all-time scare record, causing a crowd to surround him. Mike, Sulley and Boo end up in the door vault with Randall hot on their tail, and Boo's laughter causes every door to become active. They run through multiple doors across the world before Randall manages to grab Boo. Boo overcomes her fear of Randall and beats him with a bat, allowing Sulley to grab him and banish him to the human world.

Just as Mike and Sulley are about to send Boo home, her door is recalled to the scare floor, where Waternoose and the CDA are waiting. Mike distracts the CDA to chase after him by running away with Boo's costume while Sulley takes Boo and her door. Waternoose notices them and chases them to the simulation room. Waternoose reveals his conspiracy to kidnap as many children as necessary to keep the company afloat. Mike records the conversation, exposing him to the CDA, and Waternoose is arrested. Roz arrives and reveals she's the CDA's undercover director. She allows Boo to be sent home, but her door will be demolished afterwards. Mike and Sulley say their good-byes to Boo. The door gets destroyed, with Sulley keeping one small piece as a memento.

Sulley gets the idea to retool Monsters Inc to be about making kids laugh rather than scream, as laughter has proven to be ten times more powerful. Mike now works as the company's top comedian, while Sulley works as the new CEO. Mike takes Sulley to the simulation room for a surprise: Boo's door having been rebuilt. Sulley takes the one piece he saved and slides it in, activating the door. Sulley looks inside to see if Boo is there. Boo then says, "Kitty," and Sulley smiles in delight.

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