NOTE: This spoiler was submitted by Jeremy.
In a small town in Detroit, there lives Billy (Christina Hendricks) and her two sons, Bones (Iain de Caestecker) and Franky (Landyn Stewart). Billy and Bones both love Franky but are fairly distant from each other. In his spare time, Bones goes around the abandoned houses in town to look for spare scrap parts while avoiding the town's vicious criminal Bully (Matt Smith). Bully catches Bones taking something from a home, which he claims to be his own property. Bones runs away as Bully screams maniacally.
Billy meets with the bank manager Dave (Ben Mendelsohn) since she is unable to repay a loan that Carl (the father of her sons) left her so that she could stay in her grandmother's home. She has no job or source of income, leaving her in a tight situation. Dave suggests Billy to a job in town.
A group of construction workers begin tearing down the houses in the neighborhood. One man spray-paints a D on Billy's house.
We meet the family's neighbor Rat (Saoirse Ronan), who lives with her grandmother (Barbara Steele) and her pet rat Nick. Rat sings a melancholic tune about someone loving her.
Bones takes a look underwater in the nearby river to see many discarded materials and constructions. He meets Rat, who tells him that there used to be a town that was flooded when a reservoir was built, hence the name "Lost River". Rat mentions having a video of it that her grandmother has kept for years. She notes that the only way to break the "curse" of the land is to get a piece of land from underwater and bring it to the surface.
Billy is taken by a friendly cab driver (Reda Kateb) to a burlesque studio downtown. She enters among the crowded audience to see a show put on by the main performer, Cat (Eva Mendes). The appeal of the show is a realistically gory murder show where Cat gets stabbed multiple times and has her "blood" spray all over the delighted audience. Billy goes backstage and meets with Cat, who asks her what kind of experience in performing she has.
Bones goes to Rat's home and watches the video that features her grandmother. Later, they go out to a gas station store and encounter Bully with his henchman Face (Torrey Wigfield), whose lips were cut off by Bully, leaving him horribly disfigured. Bones hides from Bully as he starts to talk to Rat. To protect Bones, Rat accepts Bully's offer when he opts to give her a ride home. He takes her home and finds Nick. He grabs the rat and viciously kills it in front of Rat.
Billy has to take Franky to work since Bones was out with Rat. For her performance, Billy makes it look like she's cutting off her face, which excites the audience. She later sits with Dave, who hosts the joint. He disapproves of her having her son there, and then he sings a song to the audience. He takes her home and makes a pass at her. It becomes increasingly threatening when he says he likes to fuck and that it's a problem for him. Billy tries to talk him down, though since Dave is half-deaf, he mostly hears mumbles. The next shot shows Billy lying on the couch, crying.
Bones tells Rat that he knows how to break the curse. He leaves her with Franky while he goes into the river to cut off the head of a dinosaur statue. Meanwhile, Face enters Rat's home and sets it on fire with her grandmother still there. He goes down with the flames as Rat goes to find her grandmother. She fails to get her out of there but she gets Franky away from the fire. Bones sets a car on fire and waits for Bully to come driving by. He hurls the dinosaur head at Bully's windshield, causing him to crash against the burning car and get launched out where he drowns in the water.
At work, Billy is sealed in a chamber like some kind of doll while Dave performs a sexual dance routine around her, making her really uncomfortable. She is let out of the chamber and she stabs Dave in the ear, leaving him to bleed out.
Billy returns to find her sons and Rat sitting on the steps of their home while Rat's house continues to burn. With the help of the cab driver, the four of them run away and leave Lost River behind them.