This satirical comedy centres around Derek Zoolander, a dim-witted but good-natured model who is ousted as the top male fashion model by the rising star, Hansel, and his reputation is further tarnished by a critical article from journalist Matilda Jeffries.
After his three roommates and colleagues are killed in a 'freak gasoline-fight accident' (where they spray each other with station gasoline and one of them lights a cigarette), Derek announces his retirement from modeling and attempts to reconnect with his father Larry and brothers Luke and Scrappy by helping in the coal mines. Derek's delicate methods make him an impractical miner, and his family rejects him.
Meanwhile, fashion mogul Jacobim Mugatu and Derek's model agent Maury Ballstein are charged by the fashion industry to find a model who can be brainwashed into assassinating the new progressive-leaning Prime Minister of Malaysia, allowing them to retain cheap child labor in the country.
Though Mugatu has previously refused to work with Derek for any show, Derek accepts Mugatu's offer to star in the next runway show. Mugatu takes Derek to his headquarters, masked as a day spa, where Derek is conditioned to attempt the assassination when the song "Relax" by Frankie Goes to Hollywood is played. Matilda, feeling partially responsible for Derek's retirement, becomes suspicious of Mugatu's offer and, tipped off by an anonymous caller, tries to enter the spa, but is thrown out. Matilda tries to voice her concerns to Derek once he leaves, but he ignores her.
Matilda follows Derek to a pre-runway party, where, upon being challenged by Hansel, Derek loses to Hansel in a "walk-off" judged by David Bowie. Matilda receives another anonymous call to meet at a nearby cemetery. Matilda along with Derek find the anonymous caller is hand model J.P. Prewett, who explains that the fashion industry has been behind several political assassinations, and the brainwashed models are soon killed after they have completed their task (J.P. escaped because he himself is a hand model and so is smarter than the "face and body boys" like Derek.)
Before J.P. can explain more, Katinka, Mugatu's tough henchwoman, and her aides attack the group, forcing Derek and Matilda to flee. They decide to go to Hansel's home, the last place they believe Mugatu will think to look, and Derek, Hansel, and Matilda bond. Matilda admits the reason she hates models is because, as a child, she was bullied for being overweight and developed bulimia, and she believes models hurt people's self-esteem. Derek and Hansel resolve their differences while partaking of Hansel's collection of narcotics and participating in group sex with Matilda and others.
While recovering, Derek also finds that he is falling in love with Matilda. Derek and Hansel break into Maury's offices to find evidence of the assassination plot, but cannot operate his computer to find them. Derek leaves for the show, Hansel following later with the computer in hand, believing that, as told to him by Matilda, "the files are in the computer".
Matilda tries to intercept Derek before the show, but Katinka thwarts her attempt. As Derek takes the runway, Mugatu's disc jockey starts playing "Relax", activating Derek's mental programming. Before Derek can reach the Prime Minister, Hansel breaks into the DJ booth, and switches the music to Herbie Hancock's "Rockit", breaking Derek's conditioning. Hansel and the DJ have a brief "breakdance" fight before Hansel eventually unplugs the system, moments before Derek was about to snap the Prime Minister's neck.
Mugatu attempts to cover up the incident, but Hansel offers Maury's computer as evidence, smashing it to the ground which he believes would release the incriminating files. Though the evidence is destroyed, Maury steps forward and reveals he had backed up the files, and offers to turn over the evidence of the assassination plot after years of guilt for his complicity in the conspiracy.
Mugatu attempts to kill the Prime Minister himself by throwing a shuriken, but Derek stops him by unleashing his ultimate model look, "Magnum", that stuns everyone and causes the shuriken to freeze in the air in front of Derek's face and fall harmlessly to the ground. At Derek's hometown, Larry is watching the event on TV, and proudly acknowledges Derek as his son. Mugatu is arrested, and Derek is thanked by the Prime Minister.
Ultimately, Derek, Hansel, and Maury have left the fashion industry to start "The Derek Zoolander Center for Kids Who Can't Read Good and Wanna Learn to Do Other Stuff Good Too." Derek and Matilda are now have a son named Derek Zoolander, Jr., who has already developed his first modeling look.