In Los Angeles, Parker Barnes is a former police officer imprisoned for killing political terrorist Matthew Grimes, who killed Parker's wife and daughter. Barnes killed Grimes but also accidentally shot two news reporters in the process and was sentenced to 17 years to life. In the year 1999, Barnes and John Donovan are testing a virtual reality system designed for training police officers. The two are tracking down a serial killer named SID 6.7 at a restaurant in virtual reality. SID (short for Sadistic, Intelligent, Dangerous, a VR amalgam of the most violent serial killers throughout history) causes Donovan to go into shock, killing him. The director overseeing the project orders the programmer in charge of creating SID, Dr. Darrel Lindenmeyer, to shut down the project with Commissioner Elizabeth Deane and her associate, William Wallace, as his witnesses.
Following a fight with another prisoner, Big Red, Barnes meets with criminal psychologist Dr. Madison Carter. Meanwhile, Lindenmeyer informs SID that he is about to be shut down because Donovan's death was caused when SID disabled the fail-safes. At SID's suggestion, Lindenmeyer convinces another employee, Clyde Reilly, that a compliant virtual reality model, Sheila 3.2, another project created by Lindenmeyer, can be brought to life in a synthetically grown android body. Lindenmeyer replaces the Sheila 3.2 module with the SID 6.7 module. Now processed into the real world, SID 6.7 kills Reilly.
Once word gets out of SID being in the real world, Deane and Los Angeles Police Department Chief William Cochran offer Barnes a deal: if he catches SID and brings him back to virtual reality, he will be pardoned. Barnes agrees, and with help from Carter they discover that Matthew Grimes, the terrorist who killed Barnes's wife and daughter, is a part of SID 6.7's personality profile. After killing a family along with a group of security guards, SID heads over to the Media Zone, a local nightclub, where he takes hostages. Barnes and Carter go to the nightclub to stop him, but SID escapes.
The next day, SID begins a killing spree at the Los Angeles Olympic Auditorium. Barnes arrives at the Stadium to capture SID, and finds him on a train, where another hostage is being held by SID. Barnes seemingly kills the hostage in front of horrified witnesses and is sent back to prison. Having caught up with Barnes after the incident, Carter tries to prove Barnes's innocence, but Barnes is freed from his prisoner transport by SID, who once again escapes. Wallace and Deane are about to have Barnes terminated via a fail-safe transmitter implanted in his body but Cochran destroys the system after learning from Carter that Barnes didn't kill the hostage on the train.
SID kidnaps Carter's daughter Karin and takes over a television studio. Lindenmeyer, having come out of hiding, sees what SID is doing and is impressed, but is captured by Carter. After a fight on the roof of the studio Barnes ultimately destroys SID's body but is unable to learn where he hid Karin. They place SID back in VR to trick the location out of him which proves to be one of the fan enclosures on the studio roof. When SID discovers that he is back in virtual reality he goes into a rage. Cochran lets Carter out of VR, but Lindenmeyer kills Cochran before he can release Barnes. Barnes starts to go into the same shock that Donovan suffered, but Carter kills Lindenmeyer, and saves Barnes.
Barnes and Carter return to the building that SID took over in the real world and save Karin from a booby trap set up by SID that's similar to the one that killed Barnes' family. After Karin is saved, Barnes destroys the SID 6.7 module.
