Missouri, Earth, 1980. Meredith Quill travels with her boyfriend, a "space man", out into a forest, where a strange alien plant had been placed in the ground and grown. They are pleased to see the plant growing beautifully...
In the present day, Meredith's son, Peter "Star-Lord" Quill, leads the Guardians of the Galaxy, a ragtag band of mercenaries including himself, the deadly former assassin Gamora, the violent and literal-minded Drax the Destroyer, the technologically gifted raccoon Rocket, and a tiny plant-like alien known as Groot. They are protecting a cache of powerful and valuable batteries from an interdimensional monster for the Sovereign, a race of genetically engineered clones.
After killing the monster, Ayesha, the high priestess of the Sovereign, rewards the Guardians with Nebula, Gamora's cyborg sister: Nebula had been captured by the Sovereign trying to steal the batteries and is surrendered into the Guardians' custody so they can trade her in for a bounty. Unfortunately, the job is botched at the last possible moment when it comes to light that Rocket has stolen some of the batteries for himself, forcing the Guardians to flee from the Sovereign fleet.
The Guardians seem to be overwhelmed by the Sovereign fleet at first, but a mysterious figure destroys the drones attacking them, giving the Guardians a chance to make a warp jump. Their damaged ship crash-lands on a forest planet. The figure's ship lands near them, and introduces himself as Ego, Peter's long-lost father.
Peter is unsure what to make of his father appearing before him long after his mother's death. Gamora, knowing Peter wanted answers and longed for a father of his own, encourages him to go with Ego. Peter finally agrees and brings Gamora and Drax with him while Rocket and Groot stay behind to repair their ship and watch over Nebula. While en route to Ego's homeworld, they meet his assistant, Mantis, a naive but kind alien with empathic abilities that Ego uses to help him sleep at night.
Ego takes Peter and his friends to his homeworld, which is actually his real body. He explains to Peter that he is a Celestial, a god-like being who has lived since time immemorial. After manipulating the matter around his consciousness to form the planet that composed his body, he created a humanoid guise in which to travel through space and find other forms of life to abate his loneliness. It was during this wandering that he arrived on Earth, met Meredith, and fell in love. That love resulted in the birth of Peter: half Earthling and half Celestial. As the offspring of a Celestial, Peter has the ability to manipulate the "light", a power that could reshape matter around him. Seeing this proof of their connection, Peter's suspicions of Ego are cast aside, and father and son begin to bond.
Meanwhile, Yondu Udanta, who had been cast out of the Ravagers after they learned of him partaking in child trafficking, is hired by Ayesha to hunt down the Guardians. They track down Peter's ship and corner Rocket and Groot. However when Yondu says he never intended to actually hand Peter over to the Sovereign for the huge bounty, a mutiny breaks out led by an underling named "Taserface". Nebula, who has tricked Groot into freeing her, assists the traitors. With Yondu's cranial fin destroyed and his ability to use his arrow lost, Yondu is captured, along with Rocket and Groot.
After Nebula leaves with her own ship and a new prosthetic arm, Rocket and Yondu bond over being rejected and abused by their creators: Rocket had been treated poorly by the scientists who created him, and Yondu had been sold into slavery as a child. They set aside their differences and enlist the aid of Groot and Kraglin, a Ravager who remained loyal to Yondu, in retrieving a "prototype fin" for Yondu, allowing him to escape and take back their ship so they can retrieve Peter.
Back on Ego's planet, Mantis and Drax bond. Mantis is about to warn Drax about something, but stops when she sees Gamora. Gamora tries to warn Peter that something is amiss, but Peter dismisses her concerns. Gamora storms off and is confronted by Nebula, who has always resented Gamora for never losing to her when they were younger: we learn that their "father", Thanos, continually set them in competition against each other and punished Nebula for every defeat by removing a human body part from her and replacing it with a cybernetic one to "improve" her.
Peter meets with Ego once more and Ego reveals his grand plan to Peter: Having been disappointed with what he saw of life when he finally encountered it, Ego wishes to terraform all other planets in the universe, destroying all other forms of life and replacing them with copies of himself. For that he needed the aid of another Celestial, hence he set out across the stars to impregnate females of all species throughout the universe, then hired Yondu to retrieve his children. None of these children had the power to manipulate the "light" and see his plan through; but having heard of Peter's ability to hold an Infinity Stone and live, Ego has specifically sought Peter out with high hopes of success this time.
Ego activates Peter's Celestial power, causing the seedlings he planted across the Galaxy to activate and begin to consume the planets he planted them on. When Peter asks why he left his mother behind, Ego reaffirms that he loved Meredith and came back for her multiple times, but was afraid his love for her would distract him from his greater goal. Therefore he implanted in her brain the tumor that ultimately killed her.
Enraged, Peter attacks Ego's remote body as Gamora and Nebula, having reached an uneasy alliance, discover a mass grave where the remains of Ego's other children lie. They are joined by Drax and Mantis, with the four agreeing to work together to stop Ego as he tries to force Peter to carry out his plan. They are joined by Rocket, Groot, and Yondu, who are also on the run from the Sovereign fleet. The Guardians and their allies reunite in Ego's core, where they hatch a plan to kill Ego and thwart his plot: Using the batteries he had stolen from the Sovereign, Rocket constructs a bomb that can destroy Ego's consciousness. He sends the tiny Groot into Ego's core to plant the bomb and activate it while he and the other Guardians fight Ego and distract him while dealing with the Sovereign fleet led by Ayesha herself who would rather see to it that she personally kills the Guardians, Ego's plans to destroy her people be damned.
As Peter taps into his Celestial powers to fight against Ego, Groot succeeds in planting the bomb at the center of Ego's core and activating it. As the other Guardians make their escape, Yondu remains behind, even though it seems that Peter will not be able to disengage from the fight before the bomb detonates, kills Ego, and causes his planet to explode. Having specifically kept Peter with him as a child to spare him from the fate of Ego's other progeny, Yondu sees Peter as his own son and will not leave without him. Rocket has only one set of thrusters and spacesuit remaining, but leaves it with Yondu, both of them clearly aware that if Yondu succeeds in rescuing Peter, a single set won't be enough.
Yondu ultimately manages to use the thrusters to grab a battered Peter and fly the two of them away from the planet before the explosion destroys them. Before leaving Ego's atmosphere, Yondu gives Peter the spacesuit, protecting Peter from the vacuum of space, but giving up his own life in the process.
The Guardians hold a funeral for Yondu, cremating his body and scattering his ashes across the stars. As Gamora reconciles with Nebula before she leaves to fight Thanos, other Ravager ships warp in: having learned of Yondu's exploits from Rocket, the Ravagers have finally re-accepted Yondu as one of their own and are there to pay their final respects to a fallen comrade.
As the Guardians set out for new adventures, Ayesha plots her revenge against them, creating a weapon with which to destroy them once and for all, which she names "Adam".