The film opens at a research facility in Bergen, Norway. Dr. Jorgen Asbjornsen (Rolf Lassgard) is performing an experiment on lab mice. One of his experiments produces an incredible result, and he rushes to tell his colleague, Dr. Andreas Jacobsen (Soren Pilmark). Jorgen claims to have found what they have been looking for, prompting he and Andreas to hug in celebration.
Five years later, Andreas is speaking before a group of people on the dangers of overpopulation, and thus, he and Jorgen have found the solution. Andreas pulls out a box to reveal Jorgen is five inches tall, to everyone's astonishment. Andreas pulls out a trash bag containing waste produced by 36 small people over an extended period of time. The doctors then bring out another group of small people, including a child called Little Ronni, who was the first child ever to be born small.
People all around the world witness this amazing breakthrough. In Omaha, Paul Safranek (Matt Damon) goes home to his mother (Jayne Houdyshell) after seeing the news. Paul's mother suffers from fibromyalgia, and he must take care of her and administer medication.
Ten years later, Paul's mother has long passed on and he is married to Audrey (Kristen Wiig), but they still live in Paul's childhood home. While at a high school reunion, they see their friends, Dave and Carol Johnson (Jason Sudeikis and Maribeth Monroe), who went through the downsizing procedure and are now small. Dave and Carol boast to their friends how great things are as they live in a community for small people called Leisureland.
Paul and Audrey attend a seminar in which another small couple, Jeff and Laura Lonowski (Neil Patrick Harris and Laura Dern) discuss the benefits of going small and living in Leisureland. What is expensive to people of normal size is worth a fraction in Leisureland, meaning Laura was able to purchase diamond jewelry for a mere $83, which Jeff says is their food budget for two months. The audience seems more than convinced to go through with downsizing.
The Safraneks receive a call that their mortgage application has been denied. After thinking it over and discussing with Leisureland officials, Paul and Audrey decide to go and get small. Their friends throw them a party for their decision. A guy at a bar then starts to get belligerent over the fact that small people appear to get better benefits over normal-sized people, claiming they don't contribute to the economy like everyone else does. Paul's friend tells the guy to back off and intimidates him into sitting back down.
Paul and Audrey fly out to the facility where the downsizing process will take place. They go through a line of questioning to make sure they understand that downsizing is irreversible and that some side effects may include death. Still, Paul and Audrey appear to be cool with it.
Paul is shaved from head to toe and has some teeth removed before he gets small. He later wakes up and meets a nurse who presents him with a cracker pack that's huge to them, but normal for everyone else. Paul asks for Audrey, and the nurse brings him a phone with Audrey calling him. She reveals that she's at an airport because she got cold feet just as she was being shaved, claiming she wasn't ready to leave her family, friends, and life behind. Paul is furious that she left him alone like that.
Paul is taken to his new home in Leisureland, but he is now depressed over being alone. While watching TV, he sees a news report on how 17 Vietnamese activists that were involuntarily shrunken were smuggled to the United States in a TV box. The only survivor, Ngoc Lan Tran (Hong Chau), was taken to the hospital and had her leg amputated below the knee.
One year later, Paul is finalizing his divorce from Audrey. He now works as a telemarketer for Lands' End, Paul attends a birthday party at the Johnsons' place where Dave tries to console Paul over the divorce, as well as Paul's clear regret to go small. Paul then says he has been seeing someone.
Paul is having dinner with Kristen (Kerri Kenney), a single mom. His upstairs neighbor, Dusan Mirkovic (Christoph Waltz), is throwing a loud party, and Paul tells him to turn the noise down. Dusan comes downstairs and tries to invite Paul to join the party, but he declines. After his date, Paul suggests that he and Kristen get together to meet her son. Kristen is hesitant, so Paul just abruptly leaves her and joins the party.
Paul finds himself enjoying the party's atmosphere. He meets a young woman who slips him a drug through a kiss. Paul also meets a now grown-up Little Ronni and takes a selfie with him.
Paul wakes up on Dusan's floor just as the cleaning crew arrives. He recognizes one of the cleaners as Ngoc Lan. He approaches her and offers to fix her prosthetic leg. After he tells her he worked as an occupational therapist, Ngoc Lan has Paul join her to go back with her to help take care of an ailing woman.
Ngoc Lan brings Paul to the slums where she lives and tends to the needy. She takes Paul to Gladys (Rose Bianco), a woman dying of cancer who apparently lost her husband when he died during the downsizing process. Paul gives Ngoc Lan some percocet to give to Gladys for the pain, and also recommends turning her on her side so she doesn't get bed sores. Paul then tries to fix Ngoc Lan's leg, only to break it.
As a result of his screw-up, Paul must help Ngoc Lan in her work, going around the slums to help others, as well as aiding her in her cleaning job, including Dusan's house. Dusan offers Paul a chance to get away by joining him and his friend Joris Konrad (Udo Kier) in going to Norway where the first small community was created. Ngoc Lan wants to go as well, despite Dusan saying she can't. She then mentions how she and Jorgen wrote letters to each other, as he felt terrible for what happened to her. This brings her to tears and convinces the three men to let her tag along.
The group arrives in Norway and travels on a fjord to meet with Jorgen and his wife. On the journey, Paul and Ngoc Lan give into their mutual attraction and make love. When they meet Jorgen, he reveals to the group that due to the constant production of methane emissions, humanity is on the verge of extinction. Along with a large group of downsized people, Jorgen has helped established a vault within the first small colony to preserve humanity. Paul is eager to go in the vault, but Ngoc Lan doesn't want to go and thinks he should stay with her in Leisureland.
The colony watches the sunset for the last time before heading into the vault. Paul says goodbye to Ngoc Lan, Dusan, and Joris. However, he changes his mind before the door to the vault closes, and he runs back outside to be with Ngoc Lan.
Paul returns to Leisureland with Ngoc Lan and continues to help her in her work throughout the slums.
*CUT TO THE CHASE*
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In the future, Norwegian scientists establish the process of downsizing, in which people are shrunken to five inches to prevent overpopulation and excessive waste.
Paul Safranek decides to go through with it so that his money will be worth more in the small community of Leisureland. However, Paul's wife Audrey backs out at the last minute, and they divorce. Paul befriends his neighbor, a partygoer named Dusan, and he meets and falls in love with Ngoc Lan Tran, a Vietnamese activist who was involuntarily downsized and was smuggled to the United States.
Paul and his friends travel to Norway to meet Dr. Jorgen Asbjornsen, the man who helped establish downsizing. He tells the group that humanity is on the verge of extinction, and he has created a vault for several downsized people to be preserved in. Although Paul wants to join them in the vault, he decides to stay in Leisureland with his friends to help others as he always wanted to.
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