Michael Faraday (Jeff Bridges) is a college history professor at George Washington University who has been raising his nine-year-old son, Grant (Spencer Treat Clark), since the death of his FBI agent wife, who was killed in the line of duty in a scene loosely based on the real-life Ruby Ridge incident. Somewhat of a specialist regarding American terrorism and due to teach a class on terrorism at the university, Michael starts to become suspicious of his new suburban neighbors, Oliver (Tim Robbins) and Cheryl Lang (Joan Cusack), whom he's just met after taking their son, Brady (Mason Gamble), to the emergency room following a reported fireworks accident. At first his suspicions are based on little things such as Oliver's architectural blueprints that seem to be for something other than the shopping mall he claims he's building, as well as pieces of mail that contradict where Oliver said he attended college. Neither his girlfriend and former student, Brooke Wolfe (Hope Davis), nor his wife's former FBI partner, Whit Carver (Robert Gossett), believe any of his wild theories. After doing some digging, Michael discovers that Oliver's real name is William Fenimore, and that he built a pipe bomb and used it to try to blow up a postal office in Kansas when he was 16.
William/Oliver confronts Michael over his looking into William's past. He reveals that 'Oliver Lang' is the name of his friend, who died in a hunting accident. William's family had owned a farm but it went broke because the government 'appropriated' the river that ran through it 'for other uses'. As a result the crops died and they could not raise any animals. William's dad then killed himself and made it look like a tractor accident so the family could claim the life insurance. He left a note for William explaining everything.
He built the pipe bomb to get back at the government. When William's friend Oliver died he took his name the next day to hide his past. This makes Michael think twice about what he had found out. Michael continues to uncover what could be possible evidence and becomes even more wary of Oliver and Cheryl.
Michael's girlfriend, Brooke, casually spots Oliver and follows his car after witnessing a suspicious package delivery in a garage. Her trail ends up in the headquarters of a mail delivery company from where she decides to call Michael and leave a message, finally accepting his fears as founded; unfortunately, after hanging up, she turns around and stumbles on Cheryl, who had obviously heard the whole message. Brooke's murder (which happens off-screen) is covered up by making it look like Brooke died in a car crash. Michael realizes this after finding out, a few days later, that at least two voice messages were left in his answering machine and then erased by someone else (how is never explained).
He tells Carver that Lang may have been involved in her death, and is going to get proof by traveling to St. Louis to talk to a terrorist's father, Arthur Scobee. Scobee's son blew up an IRS building five years ago (a thinly veiled version of the Oklahoma City bombing), killing himself and eight children in the process. It becomes obvious that Scobee was set up. Another clue leads Faraday to suspect that his son may be in danger when he talks with Scobee's distraught father and learns that Scobee was involved in a Boy Scouts-style organization and that he knew the head taskmaster.
.. a person that Oliver also knows. Eventually the conspirators use a field trip with a Scouts-style organization to keep Faraday's son Grant as an unknowing hostage. Faraday confronts Oliver while he is throwing a party, where Oliver finally reveals that he indeed is a terrorist and is plotting something big within a few days and orders him to keep quiet about what he and his group are plotting to do. Whit accosts Michael the following day, stating the FBI discovered nothing suspicious about Oliver/William or his acquaintances, and says that Michael's 'missing' telephone message was from a payphone.
The next day, Michael rents a car under a false name and drives to the payphone where he seeing a passing delivery vehicle, follows it to its depot, where he sees men he recognizes from Oliver's house and from Discoverer photographs, loading metal boxes into the van. Michael follows the van and is shocked to see Grant at the window with the Taskmaster, and gives chase. Oliver blocks Michael's car with his own, causing a crash, and drags him to an abandoned building where he beats him, saying Michael will not see Grant again. Oliver believes his group is waging war against the government, and states their target is the FBI. Michael overpowers Oliver and drives to FBI headquarters, calling Whit at his office to warn him. Michael sees a delivery van at the gate and illegally pursues it into the secure parking garage, but discovers that the van has a different driver and is empty. Whit tells Michael that he is the only unauthorized person in the building, in panic Michael rushes back to his own car discovering at the last moment that the conspirators have planted the bomb in his own trunk seconds before it detonates.
Hundreds of government agents, and civilians, including Whit are killed in the massive blast which partially collapses the FBI headquarters. Oliver impassively watches the bombing from a distance. In a montage of television news clips, Michael is portrayed as a lone wolf terrorist who had sought revenge for his wife's death and targeted the FBI, in particular her former partner, Whit. Statements from his students, (one of whom is a conspirator), support the official story, giving accounts of his erratic and paranoid behavior in the days prior and inferring from them that he held a dangerous grudge against the FBI. Grant, now orphaned, moves in with relatives, tragically unaware of his father's innocence. In the final scene, after seeing Grant away, Oliver and Cheryl Lang talk among themselves where it is shown that they will now move again to another city in another part of the country to plan their next terrorist strike as well as look for another fall guy to take the blame for their group's actions as they did with Michael Faraday..
. and many others before him..