Lain Iwakura, a junior high school girl, lives in suburban Japan with her middle-class family, consisting of her inexpressive older sister Mika, her emotionally distant mother, and her computer-obsessed father; Lain herself is somewhat awkward, introverted, and socially isolated from most of her school peers. The status-quo of her life becomes upturned by a series of bizarre incidents that start to take place after she learns that girls from her school have received an e-mail from a dead student, Chisa Yomoda, and she pulls out her old computer in order to check for the same message. Lain finds Chisa telling her via email that she is not dead but has merely "abandoned her physical self" and is alive deep within the virtual realm of the Wired itself, where she claims she has found "God" there. From this point, Lain is caught up in a series of cryptic and surreal events that see her delving deeper into the mystery of the network in a narrative that explores themes of consciousness, perception, and the nature of reality.

"The Wired" is a virtual realm that contains and supports the very sum of all human communication and networks, created with the telegraph, televisions, and telephone services, and expanded with the Internet, cyberspace, and subsequent networks. The series assumes that the Wired could be linked to a system that enables unconscious communication between people and machines without physical interface. The storyline introduces such a system with the Schumann resonances, a property of the Earth's magnetic field that theoretically allows for unhindered long-distance communications. If such a link were created, the network would become equivalent to Reality as the general consensus of all perceptions and knowledge. The increasingly thin invisible line between what is real and what is virtual/digital begins to slowly shatter.

Masami Eiri is introduced as the project director on Protocol Seven (the next-generation Internet protocol in the series' time-frame) for major computer company Tachibana General Laboratories. He had secretly included code of his very own creation to give himself absolute control of the Wired through the wireless system described above. He then "uploaded" his own consciousness into the Wired and "died" a few days after, leaving only his physical self behind. These details are unveiled around the middle of the series, but this is the point where the story begins. Masami later explains that Lain is the artifact by which the wall between the virtual and material worlds is to fall, and that he needs her to go into the Wired and "abandon the flesh", as he did, to achieve his plan. The series sees him trying to convince her through interventions, using the promise of unconditional love, romantic seduction and charm, and even, when all else fails, threats and force.

In the meantime, the anime follows a complex game of hide-and-seek between the "Knights of the Eastern Calculus", hackers whom Masami claims are "believers that enable him to be a God in the Wired", and Tachibana General Laboratories, who try to regain control of Protocol Seven. In the end, the viewer sees Lain realizing, after much introspection, that she has absolute control over everyone's mind and over reality itself. Her dialogue with different versions of herself shows how she feels shunned from the material world, and how she is afraid to live in the Wired, where she has the possibilities and responsibilities of an almighty goddess. The last scenes feature her erasing everything connected to herself from everyone else's memories of her and everything else that has happened since the premiere. She is last seen, unchanged, encountering her oldest and closest friend Alice once again, who is now married. Lain promises herself that she and Alice will surely meet again anytime as Lain can literally go and be anywhere she desires between both worlds.