Shrek, a mean-spirited and highly territorial green ogre who loves the solitude of his swamp, finds his life interrupted when he is befriended by a talkative Donkey, one of countless fairytale creatures exiled to Shrek's swamp by the fairytale-hating and vertically-challenged Lord Farquaad of Duloc. Angered by the intrusion, he decides to ask Farquaad to exile them elsewhere, bringing Donkey along as he is the only one willing to guide him to Duloc.
Meanwhile, Farquaad's torture of the Gingerbread Man for the location of the remaining fairytale creatures is interrupted when his guards present him with a Magic Mirror. He asks the Mirror if his kingdom is the fairest of them all but is told that he is not even a king, and that he must marry a princess. Farquaad resolves to marry Princess Fiona, who is locked in a castle tower guarded by a dragon. Unwilling to perform the task himself, he organizes a tournament wherein the winner gets the "privilege" of rescuing Fiona for him. Shrek and Donkey arrive during the tournament, and ignorantly defeat Farquaad's knights. Farquaad proclaims them the champions, and compels them under threat of death to rescue Fiona, promising to move the fairytale creatures from Shrek's swamp if he succeeds.
Shrek and Donkey travel to the castle to find Fiona. They are attacked by a Dragon, who corners Donkey. In desperation, he sweet-talks the beast, learning that it is female. Dragon falls in love with Donkey and carries him to her chambers. Meanwhile, Shrek finds Fiona, who is appalled at his lack of romanticism and surprised he had not slain Dragon. They leave after rescuing Donkey, and Fiona is thrilled to be rescued but is quickly disappointed when Shrek reveals he is an ogre. Despite her demands that Farquaad come get her in person, Shrek forcibly carries her as he ventures back to Duloc with Donkey. At night, Shrek explains to Donkey his frustration at how society judges him for how he looks; Fiona overhears this, and decides to be kind to Shrek. The three encounter Robin Hood on their way back, where it is revealed that Fiona is an expert martial artist. Shrek and Fiona find they have much in common and begin to fall in love.
When the trio is almost at Duloc, Fiona takes shelter in a windmill for the evening. Donkey hears strange noises from within and investigates, finding Fiona transformed into an ogress. Fiona reveals that she was cursed during childhood to transform every night, and that only her true love's kiss will change her to "love's true form". Meanwhile, Shrek is about to confess his feelings to Fiona, but then overhears part of their conversation and becomes upset after mistaking her calling herself an "ugly beast" as disgust towards him. At Donkey's suggestion, Fiona vows to tell Shrek about her curse, but sees that Shrek has brought Lord Farquaad to the windmill. Confused and hurt by Shrek's sudden cold disposition towards her, Fiona accepts Farquaad's marriage proposal and requests they be married before nightfall. The couple return to Duloc, while Shrek angrily abandons Donkey and returns to his now-vacated swamp.
