In 1954, two U.S. Marshals, Edward "Teddy" Daniels and his new partner, Chuck Aule, are sent to Ashecliffe Hospital, a fortress-like insane asylum located on the remote Shutter Island, to investigate the disappearance of a patient. Rachel Solando, the missing woman, was incarcerated for drowning her three children and is believed to be hiding somewhere on the island as there was no way she could have escaped from the locked facility. Upon arrival, the marshals are met with resistance from the hospital's staff, including the lead psychiatrist Dr. John Cawley, who refuses to turn over records that could help in the investigation, and they are troubled by cryptic warnings and strange occurrences.

As Teddy and Chuck delve deeper into the case, Teddy's own disturbing past surfaces, including memories of his wife's death in a fire set by an arsonist named Andrew Laeddis. Teddy starts to experience migraines and vivid dreams that seem to be linked with the island's history and its unsettling psychiatric practices. He becomes convinced that there is a conspiracy at play and that the institution is performing illicit experiments on patients in the lighthouse, leading him to question everything around him, including his own sanity. The intensifying storm traps them on the island, amplifying the sense of danger and paranoia as Teddy uncovers more of the island's secrets.