Two vampires known as Death Dealers track a pair of Lycans, an ancient species of werewolf, who are in their human form. The vampires, Selene, (Kate Beckinsale) and Rigel, specialize in assassinating Lycans. Selene's motivation goes beyond duty; she also wants revenge; Lycans slaughtered her family when she was a child. The vampires believe they defeated the werewolves many centuries ago and killed their leader, Lucian, and that they must kill off the survivors. As the vampires follow the Lycans into a subway station the werewolves open fire with submachine guns and Rigel is killed. After the Lycans retreat from Selene's return fire and the arrival of a third Death Dealer, Nathaniel, she tracks them to their den. Nathaniel is slain by a Lycan named Raze after being ambushed. Upon reaching the Lycan den, Selene hears loud howling and learns that the Lycans have developed a new high-tech bullet to kill the vampires.
When Selene arrives at the vampire coven's mansion she recounts the evening's events and urges an attack on the Lycans, but the vampire regent, Kraven, tells her to drop the matter. Selene determines that the Lycans may have been following a human, Michael Corvin, and continues her investigation. In an underground Lycan lair, a scientist named Singe tests blood from kidnapped descendants of the ancient Corvinus family, trying to find a pure source of the ancient and powerful Corvinus bloodline. Soon after Selene finds Michael the pair are attacked by six lycans, including Lucian. After Lucian bites Michael, Selene helps Michael escape and the two become attracted to each other.
Selene discovers that when Lucian was supposedly killed, Kraven was the only witness. Sensing a conspiracy, she wakes a powerful elder vampire, Viktor, who has been hibernating. Viktor is angered by his early awakening, as it was Markus' turn to rule, not his. Viktor believes Kraven and orders Selene to acquiesce to the vampire hierarchy. Kraven has secretly planned to kill the vampire elder, Amelia, and her companions, with Lucian's help.
Selene tells Michael about the feud and her past. She then chains him to a wall, fearing that when he changes at the full moon he will kill innocent people. Selene captures Singe while Michael is captured by two Lycans. Selene returns to the mansion with Singe, who admits to Viktor that the Lycans are trying to combine the bloodlines of the two species with the Corvinus Strain to create a powerful hybrid. After Kraven flees the mansion because Singe has revealed that Kraven and Lucian are working together, news arrives that Amelia, who was coming to awaken Markus, has been killed by Lycans. Viktor kills Singe and gives Selene the chance to redeem herself by killing Michael.
While Michael is being held captive, he learns that Lucian and Viktor's daughter, Sonja, became lovers. When Viktor learned that his daughter had become pregnant by a Lycan, he killed her to prevent any crossing of the species, which led to the war. Selene arrives with a group of Death Dealers to bring an end to the Lycans and kill Kraven for his treachery. Lucian prepares to fight, but Kraven shoots him with a newly designed bullet intended to kill by poisoning a Lycan's bloodstream. Selene rescues Michael as her allies battle the Lycans, but he is shot by Kraven. Kraven tells Selene it was Viktor who killed her family, and that he would have killed her if she had not reminded him of Sonja. When Selene still refuses to join Kraven, he points his gun at Michael to finish him off. Lucian emerges, injuring Kraven and telling Selene to bite Michael to transmit the vampire virus into his bloodstream. Selene complies and Kraven flees after killing Lucian. Viktor arrives and throws Selene against a wall and then throws Michael through a wall and into a pond below. Viktor admits that Kraven told the truth, but tells Selene that he gave her more than her human family ever could have: immortality, he also reveals the truth of his love for Sonja and that his choice to her killed was to protect the vampires. Viktor and the hybrid Michael fight, but Viktor gets the upper hand and attempts to strangle Michael. Selene grabs Viktor's sword and kills him with it.
Selene and Michael leave the Lycan lair, now enemies of both species. At the mansion, Singe's blood seeps into the sarcophagus of the remaining Elder, Markus, a carrier of the original Corvinus Strain. When his eyes open, they are vampire blue but then turn pitch black, the eyes of a hybrid.
In the year 1202 A.D. an army led by three vampire elders (Markus, Viktor, and Amelia) arrives at a Lycan ravaged village. After killing several werewolves, Viktor and Amelia capture their target: Markus's brother, William Corvinus, the first and most powerful werewolf. Despite Markus's defiance, Viktor orders that William be imprisoned in a secret location forever.
In the Present Day (just after the events of the first film), Selene takes Michael to a safe house so that she can return to the mansion to confront Kraven. She knows Kraven intends to kill Markus and plans to stop him. However, Singe's blood has already awakened Markus, turning him into a Vampire-Dominant hybrid. Markus then wipes out Kraven and his men, and destroys the mansion. He learns Selene and Michael's location from camera surveillance of various safe houses and leaves to track them down. Markus attacks Selene and Michael, who evade him and hide in a warehouse. While inside, Selene and Michael share their feelings and make love.
Lorenz Macaro, an elderly and imposing man, sends in a team of "Cleaners" to investigate the aftermath from the battle in the Lycans' lair. When Macaro examines Viktor's body he finds a metal disk attached to his ribcage which is the match to Sonja's pendant, which is in the possession of Selene and Michael. Now knowing that the pendant is of some importance to Markus, Michael and Selene set out to solve its mystery. Selene recalls that she'd seen it as a child, but doesn't know its significance. To find answers, they travel to the hideout of the exiled vampire historian, Andreas Tanis. Selene and Michael confront Tanis, who reveals that Markus, not Viktor, was the first vampire; one of the three sons of Alexander Corvinus, the first immortal. Markus was bitten by a bat and became a vampire; his twin brother, William, was bitten by a wolf and became a werewolf. The third son remained human his entire life and gave rise to a line of descendants including Michael, who became the first Lycan-Vampire Hybrid. The first werewolves created by William were entirely animal and unable to take human form again. Due to William's destructiveness, Markus approached Viktor, a warlord dying of old age, and offered to turn him and his army into immortal vampires in exchange for tracking down and stopping William, and in destroying those he had infected.
Markus intended to capture his brother and tame him, but Viktor ordered that William be locked away forever, far away from Markus. Viktor did not kill the brothers because he believed that doing so would result in the immediate extinction of all other vampires and his Lycan slaves (a deception he had been fed by Markus). Tanis also reveals that Selene's father was the architect who built William's prison and that the pendant is a key. After Lucian's escape, Viktor killed Selene's family as they knew of the prison's location, but turned Selene into a vampire. Tanis then refers Selene and Michael to Lorenz Macaro for help. Shortly after they leave, Markus arrives and questions Tanis, who lies desperately and tries to evade telling Markus of his telling Selene the family secrets. Tired of hearing Tanis's lies, Markus learns the truth by drinking his blood, leaving Tanis unconscious.
Selene and Michael go to see Lorenz Macaro, who is actually Alexander Corvinus. Alexander reveals that he has devoted his life to containing the Vampire-Lycan War away from the mortal world, however, he refuses to help kill his son. When Markus arrives, he apparently kills Michael and learns the location of William's hidden prison by drinking Selene's blood. He then attacks and mortally wounds his father, thereby obtaining the other half of the pendant, after deriding his father's refusal to help William and revealing he and William intend to rule the world as god-like masters of a race of hybrids. On Alexander's bidding, Selene drinks his blood, enhancing her physical strength and healing abilities to a level equivalent to that of a Hybrid such as Michael and Markus themselves. When Selene asked what she would become, Alexander simply stated "The Future" meaning that she will be as strong as Markus. Afterwards, Alexander blows up his ship, killing himself. Selene, aboard Corvinus' helicopter, leads the Cleaners to the prison to confront and destroy Markus, but he has already freed William. A battle ensues in which William bites the Cleaners and begins turning them into werewolves. Michael, presumed to be dead inside his body-bag aboard the helicopter, suddenly regenerates and joins the fight in his Hybrid form. Michael ultimately kills William by tearing his head apart, while Selene kills Markus by pushing him into the spinning blades of the crashed helicopter. After the battle, Selene suddenly realises that her hand is fully bathed in sunlight coming from the roof above, and she is not hurt by it in the slightest. It seems drinking Alexander's blood has transformed her more than she imagined. Selene narrates that she fears the days ahead, as the death of the Elders will cause nothing but chaos, but she is nevertheless hopeful.
The film tells the story of Lucian (Michael Sheen), the first werewolf able to take human form and to be called a Lycan. Viktor (Bill Nighy), a ruthless elder vampire, raises the child. Viktor kills Lucian's werewolf mother but envisions a race of werewolf slaves for his clan that could keep guard during the day and toil for the vampires. As Lucian grows up, he and Viktor's young daughter Sonja (Rhona Mitra) develop an attraction that blossoms into love in their adult years, though they keep their relationship hidden.
Viktor has a relationship with the humans of the area; he protects them from the werewolves that roam the countryside in exchange for a tithe. As human nobles meet with the vampire council for protection from the werewolves, Sonja guards them. Lucian hears the werewolves near Sonja and orders Death Dealers sent to help her. When his orders are denied, he steals a horse and sword from a nearby Death Dealer. Werewolves proceed to kill the nobles, causing Lucian to battle them. When Lucian changes into a Lycan in order to protect Sonja, the werewolves back down. Viktor, despite acknowledging that Lucian saved his daughter, feels betrayed by his favorite pet and locks Lucian away after having him brutally whipped.
With the help of the scheming vampire Andreas Tanis, Sonja orchestrates Lucian's release in exchange for her seat on the vampire council. Lucian escapes, kills several of the vampires and begins liberating the other Lycans. The guards begin slaughtering the escapees. Sonja remains behind, but when Viktor discovers that she has had a forbidden relationship with Lucian, he imprisons her. Lucian and some of the freed Lycans roam the countryside recruiting many of the labourers of the human nobles to their fight for freedom. He also travels to a cavernous location that is teeming with werewolves, attempting to contact them. The vampire nobles are outraged by the escape and growing chaos, demanding that Viktor recapture Lucian. Viktor however, knows that Lucian will come to him.
Lucian learns about Sonja's imprisonment from one of her attendants and sets out to rescue her. Lucian orders his followers to wait, but be prepared to attack if he does not return. Lucian rescues Sonja from the fortress but they are attacked by the Death Dealers. Sonja confronts Viktor and tries to get him to call off his guards by revealing that she is pregnant with Lucian's child. Disgusted, Viktor overpowers her and imprisons both her and Lucian. Sonja is sentenced to death at a trial presided over by her father and the council. Lucian is forced to witness Sonja's death, in which she is burned to death by sunlight.
Lucian awakens when Viktor comes in to view his deceased daughter. As Viktor removes the pendant necklace he gave Sonja, an enraged Lucian transforms and overpowers Viktor. Lucian takes Sonja's pendant, escaping out a window. The escape is stopped at the castle walls by Death Dealers who shoot Lucian with crossbows. With a thunderous howl, Lucian summons the freed Lycans and werewolves, who attack the coven. Viktor sends Tanis to remove the slumbering Amelia and Markus from their crypts before joining the battle with his personal guard. The council, meanwhile are overwhelmed and butchered by the rampaging werewolves.
Lucian sees Viktor entering the fray and fights his way to him. Viktor and Lucian battle their way to the catacombs. The fight continues until Lucian overcomes Viktor. Viktor's 'final' words attest to his regret at not having killed Lucian the moment he was born, to which Lucian sarcastically agrees before forcing his sword through Viktor's mouth and head and letting the body fall into the water below. Lucian emerges to the courtyard which is ringed with the surviving Lycans, werewolves and freed slaves. He declares this victory as only the beginning of what will become a war between the races. Tanis is leading a very alive Viktor into a hibernation chamber on a boat.
The film ends with the opening scene of the first Underworld, with the audio from the scene where Kraven tells Selene that it was Viktor who murdered her family, rather than the Lycans, and that Viktor spared her because she reminded him of the daughter he condemned to death; Selene replies to Kraven, "Lies"