A young man named Aaron Boone (Craig Sheffer) is plagued by dreams of a city called Midian, a place where monsters can go to be forgiven and accepted. As a means of coping with these recurring nightmares and at the request of his girlfriend Lori (Anne Bobby), Boone is seeing psychotherapist Dr. Phillip K. Decker (David Cronenberg), who convinces Boone that he has committed a series of gruesome murders. In reality, Decker is a serial killer who dons a grotesque mask and has been murdering several families, all whom he sees as disgusting "breeders".
Decker attempts to pin the blame for his killing spree on Boone. He gives Boone a bottle of lithium (actually LSD) and twenty four hours to turn himself in. Boone wanders the streets in a hallucinogenic haze. He is hit by a truck and taken to a hospital. In the hospital, Boone overhears the drug-addled cries of Narcisse (Hugh Ross), who is waiting for the monsters to take him to Midian. Narcisse, led to believe Boone is a messenger from Midian sent to test him, tells Boone the way, before tearing the skin from his face with a pair of razors, in order to show his "true face". Boone escapes the hospital and makes his way to Midian, an entire city standing under a massive graveyard. Boone encounters two supernatural creatures named Kinski (Nicholas Vince) and Peloquin (Oliver Parker) who inhabit the city.
Kinski says they should take him below but Peloquin states that whereas they are "Nightbreed", Boone is a "natural" and thinks he should die. Boone pleas that he is a murderer and hence belongs with the monsters, but Peloquin says he can smell innocence and confirms that Boone is innocent. Peloquin bites Boone on the shoulder intending to devour him, but Boone manages to escape and leaves the graveyard, only to run into an entire squad of police officers as Decker tries to get Boone to surrender. Boone is then gunned down by the police. At the morgue, Boone comes back to life due to Peloquin's bite becoming a Nightbreed.
He makes his way back to Midian where Narcisse has also returned to. Boone is schooled in the laws of Midian and is inducted into Midian's society by Dirk Lylesburg (Doug Bradley), the leader of the Nightbreed. Boone is then made to touch the blood of Baphomet (the deity of Midian). Lori, seeking to understand why Boone left her, resolves to investigate Midian for herself. She befriends a woman named Sheryl Anne (Debora Weston) and drives out to the cemetery. She wanders into the cemetery, leaving Sheryl Anne waiting at the car. She finds a dying creature out in the sunlight and at the pleading request of a Nightbreed woman named Rachel (Catherine Chevalier), picks it up and takes it into the shadows, where it transforms into a little girl who happens to be Rachel's daughter Babette.
Lori asks after Boone, only to be rebuffed by Lylesburg, who assures her that Boone is now Nightbreed, and hence no longer part of her world. Lori tries to make her way into Midian but is scared off by Peloquin. As she leaves the cemetery, she is greeted by the sight of Sheryl Anne's dead body and her kille, who reveals himself as Decker. He tries to kill Lori in an attempt to bring Boone out of hiding. Decker chases Lori back into the cemetery where he knocks Lori unconscious. Before he can kill her however, Boone makes his presence known. Decker stabs him only to learn that Boone cannot be killed due to him having been transformed into a Nightbreed. Decker manages to escape and Boone takes Lori into Midian, where she regains consciousness deep inside the city.
Lori is told of the history of Midian by Rachel: the monsters of lore were peaceful beings, hunted to near extinction by frightened and superstitious humans. Boone and Lori are then banished from Midian by Lylesburg. Meanwhile, Decker interrogates a local mechanic who once wanted to join the Nightbreed and learns how they can die. He then murders the residents of the hotel where Boone and Lori are staying.
Boone finds the murder scene. Unable to control his thirst for blood, Boone begins to drink. The police find him and take him into custody. At Decker's urging, the local police and militia led by Police Captain Eigerman (Charles Haid) form up a small army to attack Midian. They release a drunken priest named Ashberry (Malcolm Smith) to serve them as God's servant in the battle.
Lori, Rachel, and Narcisse race to the jail to release Boone. Lori shows Boone that she loves him even as a "monster". The four head back to Midian where Boone convinces the scared Nightbreed to fight back. During the battle, Ashberry is horrified to learn that there are women and children among the Nightbreed and tries to stop the attack, but is roughly beaten down by Eigerman. Ashberry then finds the statue of Baphomet. He drops his cross and Bible and moves forward to swear allegiance, but is splashed and severely burned by the blood of Baphomet and transformed. The Nightbreed manages to fight back, but Boone learns from Lylesburg that Baphomet is going to destroy all of Midian. He tells Lylesburg to release the Berserkers, a monstrous, feral breed that were imprisoned due to their sheer insanity.
Lylesburg attempts to open the cages but is killed leaving Boone to release them. The Beserkers attack the humans furiously, turning the tide of the battle as the humans flee in fear. Boone and Decker then face each other in the burning wreckage of Midian. The two fight and Boone kills him. Boone then goes to Baphomet (Bernard Henry), who says that he has caused the end of Midian, but also that this was foretold.
Baphomet charges Boone with finding a new home for the Nightbreed and renames him Cabal. Boone makes his way out of Midian with Lori. The remaining Nightbreed meet in an old barn. Boone says his goodbyes to Narcisse promising that he will not forget the Nightbreed and that he will find a place where they will all be safe. Meanwhile in the ruins of Midian, Ashberry stands in front of Decker's corpse and states that he wants to exact vengeance on Baphomet and the Breed. He takes some of the blood of Baphomet and pushes it into Decker's wound. Decker suddenly springs back to life with a scream as Ashberry chants "Hallelujah" over and over again. Alternate endingIn an alternate ending (as used by The Cabal Cut of the movie), the Nightbreed await Boone in a barn whilst Boone says his goodbyes to Lori as he must venture the world to find a new home for them, but he promises to return to her.
Lori, fearing she will be elderly when the time comes whilst Boone will retain his youth, stabs herself and dies. Boone is forced into resurrecting her into another Nightbreed. At first the revival doesn't seem to work, but it is eventually successful. Elsewhere, Captain Eigerman wanders the underground remains where he stumbles upon the transformed Ashberry who desires revenge. Eigerman shares this desire, but Ashberry rejects him and kills Eigerman and begins his hunt for the Nightbreed..