The Grudge describes a curse that is born when someone dies in the grip of a powerful rage or extreme sorrow. The curse is an entity created where the person died. Those who encounter this evil supernatural force die and the curse is reborn repeatedly, passed from victim to victim in an endless, growing chain of horror. The following events are explained in their actual order, the film showing them in a non-linear narrative.
The Saeki family lived happily in suburban Tokyo, but housewife Kayako Saeki fell in love with her son's teacher Peter Kirk, obsessively writing about him in a diary. However, her husband Takeo discovered the diary, believing Kayako was having an affair, and proceeded to murder his wife by breaking her neck. He then drowned his young son Toshio to cover his tracks, along with the pet cat, Mar. Takeo hid the bodies in the attic and closet, before seemingly committing suicide by hanging himself. Peter comes to the Saeki house to speak with Kayako, only to find her corpse and flees the house, committing suicide the next day before his wife. But, due to the rage the family felt, they rise again as ghosts, notably Kayako who appears as an onryō ghost.
A few years after the Saeki family dies, the Williams family move in from America. While husband Matthew is thrilled with the house, his wife Jennifer and dementia-ridden mother Emma feel uncomfortable in the house. Jennifer is quickly consumed by the curse. Matthew returns home to find the house trashed, Emma upset and his wife dying in a bed upstairs. Matthew and Jennifer are killed by Toshio. Yoko, a careworker, arrives at the house the next day to find Emma alone, and discovers a note supposedly written by Jennifer explaining she's gone for a walk. She hears noises from the attic and investigates, only to encounter Kayako who drags her up into the attic. Concerned about Yoko's disappearance, her employer Alex sends another careworker Karen Davis to take over the care for Emma. At the house, Karen finds Emma alone, and is shocked when she finds a seemingly alive Toshio and Mar in the taped up closet, contacting Alex for help. Returning to Emma, Karen witnesses Kayako emerge from the ceiling and attack them both.
Alex arrives at the house, finds Emma dead and Karen in a state of pure shock, and summons the police, including Detective Nakagawa. Nakagawa and his partner Igarashi explore the house, finding the bodies of Matthew and Jennifer in the attic along with a bottom jaw. Matthew's sister Susan disappears after being dragged into her bed by Kayako, and Alex is killed when visited by a Kayako-possessed Yoko (missing her jaw bone) at work. Karen begins to be haunted by Kayako herself, informing her boyfriend Doug of the situation. She researches the origins of the house, eventually confronting Nakagawa who explains three of his colleagues investigating the Saeki deaths all were consumed by the curse. That night, Nakagawa goes to the house and tries to burn it down using petrol, but is lured by a gurgling noise coming from the bathtub. He discovers Toshio kneeling beside the bathtub with his head dipped into the water, seemingly drowning, and hurries to help him, but the ghost of Takeo suddenly appears and forces Nakagawa's head into the bathtub and drowns him.
Karen races to the house upon learning Doug has ventured there to look for her, experiencing a realistic flashback where Peter visits the house and finds Kayako's corpse. Finding herself back in the present, Karen finds Doug, paralyzed by fear, and attempts to flee the house with him, only to witness Kayako drag herself down the stairs and kill Doug. Karen spots the petrol and manages to ignite it with Doug's lighter just as Kayako is about to kill her. Karen is whisked to hospital, but learns the house still stands. Visiting Doug's body, Karen realizes she is still , until the sequel.
- Adrianne Palicki as the film's main protagonist Karen Davis an exchange student who takes a job as a caregiver to obtain social studies credit and who is one month pregnant with alex's baby.
- Matt Shively as Doug, Karen's boyfriend, who attends the University of Tokyo, and has a part-time job working at a restaurant.
- Camilla Belle as Susan Williams, Matthew's older sister, who resides and works in Tokyo, and who helps her brother, sister-in-law and mother choose and move into their new home.
- Devon Werkheiser as Matthew Williams, a "number cruncher" who receives a promotion from his superiors that requires him to relocate to Tokyo.
- Emily Browning as Jennifer Williams, Matthew's lonely wife who is trying to adjust to a new life in Japan.
- Naomi Watts as Emma Williams, Matthew's mother, who is suffering from severe lethargy with mild dementia.
- Tatsuya Fujiwara as Det. Nakagawa, a detective whose colleagues all died or disappeared under mysterious circumstances during the investigation of the Saeki family murder case. He is all too aware of the house and its strange history.
- Dave Coulier as Peter Kirk, a teacher working in Tokyo, who receives a number of love letters from Kayako, a woman he does not know.
- Angus T. Jones as Alex, the director of the care centre that Yoko and Karen are stationed at. and the father of Karen's Baby
- Arielle Kebbel as Maria Kirk, Peter's wife.
- Akina Minami as Yoko, a Japanese care worker who speaks English, and is assigned to care for Emma Williams.
- Youki Kudoh as Kayako Saeki, a married woman who develops an attraction towards Peter Kirk. Her vengeful ghost is the main antagonist of the film.
- Shûsei Uto as Toshio Saeki, the eight year-old son of Kayako and Takeo Saeki.
- Hiroyuki Sanada as Takeo Saeki, Kayako's husband, who is angry when he discovers her feelings for another man. He murders Kayako prior to the film's events and puts a curse on the house.