A pharmaceutical company called Worthington Labs announces that it has developed an inoculation to permanently suppress the X-gene that gives mutants their powers, offering the so-called "cure" to any mutant who wants it; the cure is derived from a mutant boy named Jimmy, whose own ability is to automatically and unconsciously surpress the abilities of other mutants in immediate proximity to him. The cure was created because Warren, the son of Mr. Worthington, owner of the lab, is a mutant with angel-like wings growing out of his back, which he can actually use to fly. Worthington wants them gone, but when the time comes, Warren refuses and leaves and goes to Xavier's school instead. While some mutants are interested in the cure, including the X-Men's Rogue, many others are horrified by the announcement. In response to the news, the X-Men's adversary Magneto begins to raise an army, warning his followers that, like his experiences in the Nazi Holocaust, the cure will be forcefully used to exterminate the mutant race.
Cyclops, still heartbroken about the loss of Jean Grey, returns to Alkali Lake, where Jean sacrificed herself to save the X-Men. He hears her voice and begs for it to stop, finally taking off his sunglasses and his eye beam shoots through the water. Jean then appears out of the water to Cyclops, and as the two kiss, Jean changes and appears to kill Cyclops. Sensing trouble, Professor Charles Xavier sends Wolverine and Storm to investigate. When they arrive, the two X-Men encounter telekinetically floating rocks, Cyclops' glasses, and an unconscious Jean. Meanwhile Magneto ambushes a military transport and frees Juggernaut, and Multiple Man, during which Mystique blocks a shot of the mutant cure aimed at Magneto, only to be left behind because she is not "one of them" anymore. Shortly after, Dr. Hank McCoy resigns his position as Secretary of Mutant Affairs.
Xavier explains to Wolverine that the majority of Jean's power is seated in her unconscious mind and that, as a result, her powers are largely fueled by instinct, and not under her complete control. In fact, when Jean was a little girl she was so powerful that he had to put telepathic blocks on her mind to help keep her powers under control. Her bottled up powers manifested themselves as an id-like alternate personality called the "Phoenix" — a purely instinctual creature, ruled only by its own violent desires. Initially skeptical, Wolverine becomes more convinced when Jean reawakens, acting strange and aggressive. He asks about Cyclops, but she cannot remember and fears she killed him. Jean pleads with Wolverine to kill her before she harms anybody else, but when he refuses and offers to have Xavier help her, the Phoenix resurfaces and telekinetically slams Wolverine into a wall. She then flees to her childhood home, with Xavier, Wolverine and Storm in pursuit. Magneto, also aware that Jean's powers are loose, meets Xavier at Jean's house. The two men plead for Jean's loyalty until the Phoenix resurfaces, unleashing her devastating power. Furious at being caged within Jean's subconscious for twenty years, she destroys her family's house and engages in a psychic battle with Xavier. She eventually overpowers and disintegrates Xavier before leaving with Magneto.
Following the losses of Xavier and Cyclops, and pained by her inability to get physically close to her boyfriend Iceman, Rogue decides to take the mutant cure. The X-Men regroup and confront Magneto's army, which is attacking the pharmaceutical company's laboratory on Alcatraz Island. The battle begins when Magneto moves the Golden Gate Bridge to land at Alcatraz Island, which is being guarded only by a company of soldiers. The Brotherhood's first charge is ineffective as Magneto is unable to destroy the soldiers' plastic weapons. The first group of mutants, which Magneto refers to as "pawns", are hit with the cure cartridges and depowered. His minion, Arclight, destroys the weapons with her shockwaves as the X-Men arrive: Magneto derides them as traitors and orders his army to attack as the X-Men confront them to give Kitty Pryde time to save Jimmy, narrowly defeating Juggernaut. Worthington himself is nearly killed, but his son, Warren flies in and saves him. Iceman goes one-on-one with his rival Pyro, where he transforms his entire body into ice, freezes Pyro's hands, and defeats him by delivering a strong headbutt to Pyro's head. Wolverine distracts Magneto while Beast injects him with the cure, nullifying his mutant powers. After this, Wolverine nearly coaxes Jean back to sanity; however, more soldiers arrive and fire upon Jean. The Phoenix quickly resurfaces and, in her rage, begins to disintegrate everything and everyone around her, vaporizing the soldiers along with Worthington Labs. While the other X-Men, soldiers and the remnants of Magneto's army flee to safety, Wolverine fights his way to Jean, relying upon his healing abilities to save himself from her destructive power. When he reaches her, the Phoenix coldly sneers at Wolverine being willing to die for the others, to which he retorts that he would only die for her. Momentarily regaining control, Jean begs Wolverine to save her. Wolverine confesses his love for Jean, and reluctantly kills her with his claws.
Despite the X-Men's losses, life goes on. The school will continue without Xavier, with Storm now in control. The President appoints Hank McCoy to the United Nations to represent the entire United States: human and mutant. Rogue returns and tells Iceman she had to take the "cure." The two reconcile and continue their relationship, now able to touch each other. Magneto, now an ordinary man, sits at a chessboard in a park and reaches out toward a metal chess piece that moves slightly, indicating that the mutant cure isn't as permanent as was originally thought.
Following the closing credits, Dr. Moira MacTaggert checks on a comatose patient who greets her with Xavier's voice, implying that he has transferred his mind into this new body.
