After a Last Note Nightmare Dream Sequence of Jean-Luc Picard undergoing Borg-ification, the good captain is awakened by an alert which isn't much better than the dream: A Borg ship is en route to Earth. Picard then drops the bomb that the brand-spankin'-new USS Enterprise (1701-E), Starfleet's flagship and the most advanced vessel in The Federation's arsenal, will not be part of the defense line but will instead monitor the Romulan Neutral Zone; he later confides privately with First Officer Riker that Starfleet wants to keep Picard away from the Borg, implying they think he might somehow sabotage the defense (there's a bit of Fridge Brilliance to this, though it's still kind of a dick move since there are alternatives).
Nonetheless, once the fighting starts it takes Picard about half a minute to say Screw the Rules, I'm Doing What's Right!, and Enterprise joins the fight Just in Time to rescue the crew of the Defiant (captained by our old pal Worf) and land a killing blow on the Borg cube. But the cube releases a Spheroid Dropship which initiates a Negative Space Wedgie in order to go back to the past, which results in a fully Borged-up Earth; and so Enterprise must follow into the Wedgie in order to Set Right What Once Went Wrong (thanks to its Plot Armor-ed Ripple Effect-Proof Memory). They destroy the Borg sphere as it begins bombing the crap out of Montana, then Picard realizes the Borg were trying to subvert First Contact and that the bombing target was the launch site for Zephram Cochrane's experimental warp-flight rocket (code-named Phoenix). The senior crew beam down to initiate damage control and are promptly attacked by Cochrane's assistant Lily, who is suffering from radiation sickness. Dr. Crusher beams her back to the ship for medical treatment while the rest start looking for Cochrane.
On his way down to the launch site with his engineering team, Mr. Fixit LaForge notes that it seems a bit hot in the engine room. Soon a pair of Redshirts who look into this are mugged offscreen... Picard starts getting bad vibes and takes Data back up to the ship where the crew seems to have lost control of several lower decks; Picard deduces that the Borg beamed onto Enterprise without being detected (somehow) and are assimilating it from within. Picard wastes no time forming La Résistance, with Data and Worf as his lieutenants. However, as they are attempting to retake the Engineering deck, Data is captured and Picard is separated from the rest of the pack; meanwhile, Lily escapes from her own group and confronts Picard, who ultimately befriends her.
Down below, Riker finds Troi drunk; but it turns out her drinking partner is none other than Zephram Cochrane himself, an alcoholic money-grubbing Casanova Wannabe who is nothing like the visionary figure they'd learned about in the 24th century. They get Cochrane motivated by showing him via telescope the Enterprise in orbit, the end result of his historic flight-to-be. Riker and his teams get right to the work of repairing and prepping the Phoenix for launch, somewhat to Cochrane's chagrin as he is uncomfortable with their hero worship. (At one point Riker even has to phaser-taser him as he's running away.)
Data, for his part, finds himself face to face with the Borg's Hive Queen, the hitherto unmentioned leader of the Borg and the nexus (or some such) of their Hive Mind. The Queen freely admits that she's trying to lure Data over to The Dark Side and shows what she's willing to do in repayment — she has replaced a portion of Data's arm with human skin (or a reasonable synthetic substitute, maybe) as a first step to helping him Become a Real Boy. Data, unable to process the new sensations afforded him by the grafting process, begins to falter in his convictions, and then the Queen really lays the seduction smackdown on him:
- Queen: How long has it been [since you made love]?
Data: Eight years... seven months, sixteen days, four minutes, twenty-two--
Queen: Far too long! [Big Damn Kiss]
Meanwhile Picard, having been reunited with the main cast, leads Worf and Mauve Shirt Hawke outside the ship to stop the Borg from turning the ship's navigational deflector into a long-range cellphone antenna. Our Heroes prevail (and Worf finally gives The Worf Effect a well-deserved kick square in the nads — "Assimilate THIS!"), but they lose Hawke in the process.
And so it goes. The crew can make no headway against the Borg due to their Adaptive Ability, steadily losing more and more of the ship. Worf and Crusher realize it's a hopeless fight and vote to activate the Self-Destruct Mechanism, but Picard refuses, even going so far as to call Worf a coward for suggesting it (um, Jean-Luc, remember what happened to The Worf Effect just a few minutes ago...?) But it's Lily, of all people, who really tells Picard off for his Roaring Rampage of Revenge Before Reason, resulting in him smashing his Enterprise models in a fit of rage — and instantly realizing that his current course will lead to similar results for the Enterprise-E. So Picard finally orders the Self Destruct to be activated and the ship abandoned; but he himself remains aboard, in order to go find Data.
During all this, Team Montana has managed to get Cochrane's warp ship up and running and prepped for launch. So, with Riker and LaForge as his flight crew and with a helpful boost from A Little Something We Call "Rock and Roll", the Phoenix launches into orbit.
Meanwhile, Picard enters the engine room and finds Data all Frankensteined and stuff, half his face replaced by fake human skin. Picard also confronts the Queen, even claiming to Remember the New Guy? from his time as Locutus. In any case, Picard makes a Deal with the Devil, giving himself to the Borg so that Data can go free. But Data himself defies this Heroic Sacrifice, revealing himself to be fully seduced and corrupted by the Borg Queen as he hands control of the Enterprise over to her. Bearing down on the now space-borne Phoenix (startling Cochrane, though Riker assures him it's just a friendly send-off), Data fires torpedoes at the little rocket at the Queen's order. "Watch Your Futures End!"
The torpedoes miss the target!
Data: Resistance Is Futile!
He then smashes open a tank of Chekhov's Gas that will kill the Borg. Picard climbs up the warp core to escape the gas, and the Queen nearly follows him right up there but Data grabs her and drags her down with him. The gas kills her, and along with her go all the Borg drones. Afterward Picard finds Data on the engine room floor, his human skin burned off The Phantom of the Opera-like but otherwise fine. And the Phoenix makes its historic 10-second warp flight.
And so the day is saved. As Picard and his crew make their farewells with Cochrane and his, a small spaceship comes down and lands at the Phoenix launch site... it's the Vulcans, making First Contact with Earth (Enterprise hides behind the moon). With history set back on its right pace (until In A Mirror, Darkly, that is), Picard and Co return to their ship, somehow re-create the Borg Time Travel Wedgie, and return home.