Sophie is a timid and unconfident 18-year-old girl who works in her late father's hat shop in the town of Market Chipping. She is forced to make hats while listening to her assistants gossip about the handsome yet heartless Wizard Howl. From her window, Sophie can see his scary moving castle walk by in the wastes. Her assistants ask her to come out with them, which she declines. However, she changes her mind and decides to go out alone with the intention of visiting her pretty younger sister Lettie who works at a bakery.

All over town people are seeing the soldiers off and the soldiers are celebrating by flirting and accosting young girls. On her way to the bakery Sophie bumps into and is harassed by two menacing soldiers who refuse to leave her alone. Suddenly, she had chance encounter with the handsome but mysterious wizard Howl, who rescues her from the troublesome pair. Howl literally sweeps her off her feet by taking her for a stroll in the sky above the town. His kindness towards her briefly sparks happiness in Sophie. After their encounter she falls head over heels in love with him, unaware that it is Wizard Howl.

Later that night, the vain and jealous Witch of the Waste appears in Sophie's hat shop. The Witch hints at a prior connection to Howl (the Witch of the Waste once came to Howl as a beautiful young woman, which there Howl pursued her as a lover, but rejected her after seeing her true form. The Witch now assails Howl with the fury of a jilted lover) and curses Sophie by transforming her into a 90-year-old woman before disappearing.

Because of her mysterious transformation and afraid that people will ask questions Sophie runs away from home and journeys into the Waste. There, she befriends a magically animated scarecrow whom she names Turnip Head. Turnip Head secures her shelter from the Waste within Howl’s moving castle, a chaotic ensemble on mechanical legs.

Inside the castle, Sophie makes a deal with Calcifer, a fire demon who powers the castle's movement. Because of a magic contract that binds Calcifer and Howl together, Calcifer must work as Howl's servant, which he has grown to resent. Calcifer agrees to change Sophie back to her normal age if she can break the contract, but since the contract stipulates that its terms cannot be disclosed to a third party, Sophie must figure out the terms on her own.

"Grandma" Sophie, as she now calls herself, also meets Markl (Michael), Howl's eight-year-old apprentice; Howl himself appears soon after. Embarrassed by her transformation, Sophie hides her true identity and claims to be a cleaning lady hired by Calcifer to maintain the castle. She's accepted by Markl and Howl, and sets to work cleaning the castle.

Sophie discovers that the front door of the moving castle is magically connected to buildings in two towns situated in the same kingdom (Porthaven and Kingsbury) where Howl maintains different identities. She also sees that, despite being a grown man, Howl is selfish, childish, and immature in many ways: He is vain about his looks and insensitive of others' feelings.

Howl receives summons from both Porthaven as Wizard Jenkins and Kingsbury as Wizard Pendragon to fight for the King. The war is being fought over the missing Crown Prince Justin, each side blaming the other for his disappearance. Howl suspects the Kingsbury summons is a trap set by Madame Suliman, Kingsbury's head sorceress and Howl's old mentor; also, Howl is a pacifist who despises war. Too cowardly to confront Madame Suliman, he convinces Sophie to speak to Suliman by posing as his mother, "Mrs Pendragon."

Going to the royal castle to meet with Madame Suliman, Sophie runs into the Witch of the Waste, who boasts that Suliman sent her a royal invitation, presumably to become a war magician. However, the Witch of the Waste is captured by Suliman's stronger magic, stripped of her powers, and shrunken into a helpless old lady. Suliman then confronts "Mrs. Pendragon" and demands that Howl become a war magician, or else she will deal with him as she has dealt with the Witch. Sophie defends Howl and her passion temporarily restores her youth. However, Howl comes to her rescue disguised as the King of Ingary, but Suliman sees through his disguise. Suliman refuses to allow them to leave so they escape Suliman on a flying machine along with Heen, Suliman's asthmatic errand dog, and the now-helpless Witch of the Waste. Howl stays behind fighting off the chasing soldiers while Sophie goes ahead flying back to the castle. Suliman, however, learns Sophie's true identity and uses her to track Howl. That night, Howl comes back in a large bird-like form walking up the stairs of the castle. Sophie wakes up as her young self again and tries to look for him, finding him in his rearranged room hiding himself. She tells Howl she wants to help him break his curse and that she loves him but his only reply is that she can't help him because she cannot break her own curse and flies away into the night, with Sophie turning back into her old self and wakes up, learning it was a dream.

After escaping from Suliman, Howl transforms the castle into a larger and more beautiful version of itself as a present for Sophie. This severs the portals to Porthaven and Kingsbury, but opens two new portals: one leading to a flowery alpine field where Howl used to roam as a child, and another to Sophie's old hat shop in Ingary. Unbeknownst to Sophie, the self-confidence she has gained, along with her developing affection towards Howl, has begun to reverse the curse, returning her gradually to her true age.

As the war continues, Madame Suliman attempts to track Howl down at the hat shop, and Howl fears for the safety of Sophie and the others. Meanwhile, Howl's contract with Calcifer takes its toll: Each time he transforms into a large birdlike creature to defend himself and his friends, it becomes increasingly difficult to revert to human form.

Soon, there is a knock on the door of the hat shop, which Sophie answers to find her mother Honey; the two share a brief but emotional reunion. Honey conveniently forgets a small bag before she leaves, lamenting outside that she was blackmailed by Madame Suliman into betraying Sophie. Hidden in the bag is a spy bug; which the Witch of the Waste disposes of by feeding to Calcifer, but Calcifer becomes severely weakened as a result.

Eventually, the war comes to Ingary. As bombers attack the town, Suliman's henchmen swarm the hat shop, forcing Howl and Sophie to retreat. Howl transforms into the bird creature to draw the enemies away, while Sophie moves the castle back to the Wastes. Sophie realizes that Howl is caught in a hopeless battle, and convinces Calcifer to rescue Howl. In his weakened state, Calcifer is unable to move the entire castle. Sophie temporarily removes Calcifer from his hearth, which demolishes the castle along with her hat shop. She returns Calcifer to the hearth and, fueled by Sophie's long braided hair, Calcifer powers a smaller part of the castle and moves it to rescue Howl.

Unfortunately, as Calcifer is moving the castle, the Witch spies Howl's heart in the ashes - the one thing she had been seeking for ages. She greedily grabs it, but the heart is so hot it sets her aflame; to save her, Sophie throws a bucket of water on her and Calcifer. The shock of having his flames extinguished incapacitates Calcifer, who becomes unable to control the castle. It teeters on a high precipice, and Sophie and Heen are thrown over a cliff as the castle starts to collapse.

Surviving the fall, Sophie cries over the thought that by dousing Calcifer, she may have killed Howl. In the rubble, she finds the magical castle portal. Sophie enters the door to find herself transported into Howl's childhood. She learns that as a boy, Howl caught a dying (falling) star — Calcifer — and saved its life by giving it his own heart. This bound Calcifer to Howl indefinitely as a servant, but in the process Howl metaphorically lost his heart and became emotionally trapped forever in childhood - among other things, he is unable to truly love anyone. After being pulled back through the door, Sophie finds Howl outside the door. He is still in bird creature form, and badly injured and bleeding, but is able to take them back to their friends.

Sophie, Howl and Heen land on the remnants of the castle, and Howl falls unconscious as he transforms back into human shape. Sophie convinces the Witch to give Howl's heart back to him. Sophie pushes it into Howl's chest and Calcifer emerges in his true form - a shooting star gleefully spiralling into the distance. Without Calcifer powering it however, the remnants of the castle suddenly give way and plummet down a steep slope. Turnip Head, in a moment of bravery, uses his pole to stop the castle from sliding off a cliff, although he is badly broken in the process. Sophie thanks him for saving their lives by giving him a kiss; Turnip Head then turns into Crown Prince Justin, who had been transformed by a spell that could only be broken by a kiss from his true love. However, when Howl wakes up, Sophie shows she is really in love with Howl, which breaks her own curse. Crown Prince Justin, realising that his true love is actually in love with someone else, retreats and goes back to tell his king to stop the meaningless war that is going on. Calcifer soon returns, saying he missed them, and decides to stay even though his contract with Howl was broken.

Madame Suliman witnesses all this in her crystal ball back in Kingsbury; with Prince Justin rescued and Howl's heart restored, there is no reason to continue the war. She calls for an immediate cease-fire and the conflict ends. As the kingdom's aerial warships return home, Sophie, Howl, Witch of the Waste, Calcifer, Markl and Heen fly away in the newly rebuilt castle, which flies.