Fashion mogul Jacobim Mugatu (Will Ferrell) is charged by the fashion industry to find a male fashion model who can be brainwashed in order to assassinate the Prime Minister of Malaysia at an upcoming fashion show in order to retain cheap child labor in that country. Mugatu, with help from model agent Maury Ballstein (Jerry Stiller), selects for the task the dim-witted but good-natured Derek Zoolander (Ben Stiller), formerly the top male fashion model in the world but displaced by the up-and-coming Hansel (Owen Wilson) at the latest VH1 Fashion Awards. After losing his fellow male model colleagues in a “freak gasoline-fight accident,” Derek announces his plan to retire from modelling and returns home to his father Spencer (Jon Voight) and brothers and tries to work alongside them in the coal mines, but is rejected by his family and returns to New York City.
Mugatu offers Derek a role in the upcoming “Derelicte” fashion show—a show inspired by the homeless vagrants of New York—and brings him to a day spa to help him prepare for the show. Journalist Matilda Jeffries (Christine Taylor), who wrote a derogatory article in Time on Derek after his loss to Hansel, becomes concerned for Derek due to the impact of the article, and starts following him. She also becomes suspicious of Mugatu suddenly taking an interest in Derek after refusing to even let him model for him in the past, her suspicions seeming to be confirmed when she fails to find any information regarding Mugatu’s past and she receives anonymous calls from a man who tips her off about Mugatu’s “spa”. Matilda follows the tip and sees Derek go into the supposed day spa, but before she can investigate, she is thrown out by Mugatu’s tough female assistant, Katinka Ingabogovinanana (Milla Jovovich). In reality, the “spa” that Derek has been taken to is in fact a brainwashing facility, where he is programmed to attack and kill the Prime Minister when Frankie Goes To Hollywood’s song “Relax” is played at the Derelicte show.
After finding Derek in his apartment after he’d been missing for a week, Matilda tries to warn Derek of her suspicions, but is ignored. She follows him to a pre-runway party where he runs into Hansel and challenges him to a “walk-off”, judged by David Bowie. After Derek loses to Hansel once again, Matilda takes him with her to escape Katinka, who believes that Matilda may discover the truth and compromise the entire assassination attempt. While escaping, Matilda receives another call from her anonymous source who tells her to meet him at Saint Adonis Cemetery. Her source reveals himself to be former hand model J.P. Prewett (David Duchovny) and tells Derek and Matilda of the fashion industry’s influence on political events such as the assassination of Abraham Lincoln and John F. Kennedy and that Derek’s life is in danger as the models are killed shortly after they complete their task. They are then forced to flee the cemetery when they are attacked by Katinka and her aides. Matilda realizes that she must hide Derek at the last place Mugatu would think to look, Hansel’s house. Derek and Matilda arrive at the residence of Hansel where they explain to him their situation and asks if he can take them in. Hansel tells them that they can stay, but only after he and Derek resolve the conflict between them. While discussing this, Hansel tells Derek that he only held a grudge against him because he was intimidated by him and that in reality, he idolized Derek. While drinking with Derek and Hansel, Matilda reveals that the reason for her dislike of models is because she was overweight as a child and felt even worse about herself when she saw beautiful models in magazines to the point where she became bulimic. Hansel decides to cheer Matilda up by having an orgy, where Derek realizes that he is falling in love with her.
Derek and Hansel break into Maury’s office to find corroborating files in his computer while Matilda tries to dig up more information on Mugatu and figure out what the trigger might be for Derek to assassinate the Prime Minister. Matilda finds out that Mugatu was originally named Jacob Moogberg and was the original keytar player for Frankie Goes to Hollywood, but was kicked out before they hit it big with “Relax.” Meanwhile, Derek and Hansel are unable to figure out how to even turn on Maury’s computer, although Derek decides to leave for the show, not wanting to be late for it even if it means that he might be killed. Matilda later contacts Hansel via walkie-talkie, where she again tells him that the files are inside of the computer, which leads him to believe that there are files physically inside the computer.
When Matilda realizes that the trigger is “Relax”, she goes to the fashion show so that she can warn Derek, but is thwarted by Katinka. At the show, Mugatu’s disc jockey starts playing “Relax” as Derek takes the runway, and the mental programming takes effect. Hansel breaks into the disc jockey’s booth and switches the music to Herbie Hancock’s “Rockit”, breaking Derek’s conditioning. Hansel and the disc jockey begin “breakdance fighting”, switching the music back and forth and bringing Derek closer to the Prime Minister, but ultimately Hansel unplugs the sound system just as Derek prepares to snap Prime Minister’s neck. Mugatu tries to cover up this failed assassination attempt by claiming that Derek snapped, but Hansel comes to Derek’s defense by offering Maury’s computer as proof of the conspiracy but smashes it apart in an effort to show the critical files. With the only incriminating evidence against Mugatu seemingly destroyed, Maury publicly admits to the whole conspiracy and reveals that he had backed up the files on a zip disk at his home. In the ensuing chaos, Mugatu attempts to kill the Prime Minister himself with an M-shaped shuriken, but Derek throws himself in its path, turns left for the first time in his life and releases his ultimate look, “Magnum,” stopping the weapon with its sheer beauty and leaving all onlookers in a state of awe. Mugatu is apprehended by the police while the Prime Minister thanks Derek for saving his life. Meanwhile, back in his hometown, Derek’s father proudly acknowledges his son’s accomplishment, having been just as awestruck by Magnum as everyone else.
In the film’s dénouement, 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”, while Derek and Matilda are shown as now having a son named Derek Zoolander Jr who has already developed his first modeling look.