The Trade Federation, a group of tyrannical traders secretly led by the Dark Lord of the Sith Darth Sidious are blocking trades to the planet of Naboo. Supreme Chancellor Valorum of the Galactic Republic sent Jedi Knight Qui-Gon Jinn and his Padawan learner Obi-Wan Kenobi to negotiate with the Trade Federation and restore trading. The two Jedi arrived at the space station and were cornered by the Trade Federation's Battle Droids. They ran away from the droids and landed at Naboo.
At Naboo, Qui-Gon rescued a clumsy Gungan named Jar Jar Binks. Jar Jar offered the Jedi to follow him to the city of the Gungans underwater. Qui-Gon talked to Boss Nass, the leader of the Gungans about giving Jar Jar Binks permission to be with them so that he will help them find Queen Amidala. Qui-Gon is driving a Bongo, an underwater vehicle that the Gungans use and avoid sea creatures that could potentially destroy it.
The Jedi and Jar Jar arrived at the courtyard, where Queen Amidala and her guards and handmaidens live. The Jedi encountered another group of Battle Droids at the flight deck and were destroyed by the Jedi's lightsabers. They all went inside a ship but it was taking damage from the Trade Federation. An astromech droid named R2-D2 repaired the ship. The repairs aren't enough for the crew to arrive at Coruscant. Qui-Gon wanted to land at Tatooine where the Trade Federation has no trace there.
Queen Amidala offered Qui-Gon her handmaiden Padme to join them, R2-D2 and Jar Jar into finding a new hyper engine. They stopped at a local shop owned by a greedy Toydarian named Watto. His young slave, Anakin Skywalker was a kind boy. Anakin wanted to explore the galaxy someday, which convinced Qui-Gon that he is The Chosen One who will bring balance to the Force. Watto told Qui-Gon that there is a hyperdrive engine but he can't accept Republic Credits, even with a Jedi Mind Trick.
Anakin's mother, Shmi offered the Jedi a visit for dinner. Anakin showed the Jedi his unfinished protocol droid C-3PO. Anakin told the Jedi that he is building a podracer for the Boonta Eve Classic so he can prove that he is not just an ordinary kid. Qui-Gon got a sample of Anakin's blood and offered Obi-Wan to count how many midichlorians does Anakin have. No other Jedi in history has over 20,000 midichlorians.
Qui-Gon is aware that gambling can trick Watto as the big race approaches. Among the most notable racers is Sebulba, who cheats every time he races. Watto is betting all of his money towards Sebulba. Qui-Gon wanted to free both Anakin and his mother. Watto has a chance cube that will decide who will be freed if Anakin wins the race. The cube landed on blue, making Anakin ready to be freed. As Anakin set up his podracer, he was confronted by Sebulba several times throughout the three-lap race. Anakin won first place and got all of the prize money needed for the engine. As they try to take off, Qui-Gon encountered a red-skinned being with a red lightsaber and attacked him before he returned to the ship.
The Jedi, Queen Amidala, Padme, R2-D2, Anakin and Jar Jar successfully landed at Coruscant. At the Jedi Council, Master Yoda is unsure that Anakin would be a good Padawan. He told Anakin that "Fear is the path to the dark side. Fear leads to anger, anger leads to hate, hate leads to suffering."
Queen Amidala talked to the Galactic Senate that Senator Sheev Palpatine of Naboo should replace Chancellor Valorum in a vote of no confidence as she discusses the invasion of her home planet. Palpatine became a nominee for future Chancellor.
The Jedi, Queen Amidala, Padme, R2, Anakin and Jar Jar arrive at Naboo and talked to Boss Nass. Padme revealed herself as the real Queen of Naboo, with her decoy Sabe by her side and begs the Gungans to help them. Darth Sidious told the leaders of the Trade Federation and his apprentice Darth Maul who happened to be the Sith Qui-Gon encountered to wipe out the Gungan Army.
The Gungan Army set up a ray shield to defend themselves from the Battle Droid Army. However, they penetrated the shield. Padme, the Jedi and her guards were at the flight deck, destroying droids in the process. The Jedi found Darth Maul and saw him ignite his double-edged lightsaber. They attacked Darth Maul throughout a hallway with lights that act as walls. As the lights turned off, Qui-Gon headed towards Darth Maul and was mortally wounded by the Sith.
Obi-Wan was kicked by Darth Maul and held onto a ledge with no lightsaber. He used the Force to jump onto the floor with Qui-Gon's lightsaber and sliced the Sith in two. He talked to his master one last time as Qui-Gon gave advice to help Anakin. "He is the Chosen One. He will bring balance. Train him."
Anakin and R2 stayed inside a Starfighter and it was headed towards the droid control ship operated by the Trade Federation. Anakin used it's weaponry to destroy the control ship, disabling all of the Battle Droids.
Palpatine became the Supreme Chancellor after the invasion halted, to the Republic's joy.
Master Yoda is uncertain that Obi-Wan should train Anakin. Obi-Wan tried to explain that Qui-Gon relied on Obi-Wan to have him as a Padawan learner for Anakin. Yoda eventually accepts Obi-Wan's feelings and gave Obi-Wan permission to train Anakin.
At Qui-Gon Jinn's funeral, Yoda was conversing with Mace Windu about Darth Maul and the rule of two that there is a master and an apprentice for the Sith. The master of Darth Maul is still out there and mysteriously aware that Maul would fail.
While the future is uncertain, there was much to celebrate at Naboo. Boss Nass declared peace on the planet as everybody cheered.