The film's plot transposes two alternate dimensions: the real world, and the Cool World, a world of animated characters, called "doodles. " The film begins in 1945-era Las Vegas. Frank Harris, a returning GI (Brad Pitt) is reunited with his mother. Soon he takes her for a ride on his motorcycle and they are involved in an accident resulting in her death. Grieving and hallucinating, he is transported into another dimension, the fully animated "Cool World. " The film flashes forward to 1992. Cartoonist Jack Deebs (Gabriel Byrne) has been incarcerated for murdering a man he found in bed with his wife. During his prison sentence, he has visions of the Cool World and of the sexy blond doodle, Holli Would (Kim Basinger).
Deebs passes the time by creating a comic book series based on his visions of Cool World. Shortly after being released from prison and returning to his home in Las Vegas, Deebs is pulled into the Cool World by Holli. Holli wants to have sex with Deebs so she can become real and feel real things and enter the real world, but sexual relationships between noids (humans) and doodles (toons) are illegal in Cool World. Frank Harris, aided by his partner, Nails, the spider-like doodle, keeps a sharp eye on Holli and Deebs.
Their job is to make sure that humans don't have sex with cartoons, since that act can rupture the fabric between the two universes. The twist lies in the fact that after all these years, Harris has fallen in love with Lonette, a sexy animated waitress. Meanwhile, Holli and Deebs have sex and she turns into a noid. Deebs and Holli head to Deebs's home dimension. The barrier between the Cool World and the real world has been damaged.
Deebs and Holli repeatedly turn into clown-like doodles. In Las Vegas, Holli manages to find the Golden Spike of Power, which keeps the Interworld Matrix between the Cool World and the real world intact. It turns her back into a doodle and releases many monstrous doodles into the real world. Deebs turns into a super-powered humanoid doodle, and puts the Golden Spike back into its place; Deebs is stuck, perhaps forever, in the Cool World, but he has plans to marry Holli. Harris is killed trying to stop Holli, but in the process is reborn as a doodle, allowing him to pursue his relationship with Lonette.