Arthur (Clive Owen) is a Roman cavalry officer, also known as Artorius Castus, the son of a Roman father and a Celtic mother, who commands a unit of Sarmatian auxiliary cavalry in Britain at the close of the Roman occupation in 410. Arthur is loyal to Rome and a devout Christian, but follows the teachings of Pelagius, which many consider heretical. He and his men guard Hadrian's Wall against the Woads, a group of Britons who are rebels against Roman rule, led by the mysterious Merlin (Stephen Dillane).

Arthur and his remaining knights Lancelot (Ioan Gruffudd), Bors (Ray Winstone), Tristan (Mads Mikkelsen), Gawain (Joel Edgerton), Galahad (Hugh Dancy) and Dagonet (Ray Stevenson) expect to be discharged from their service to the Empire after faithfully fulfilling a fifteen-year commitment.

However, on the night when they are to receive their freedom, Bishop Germanus (Ivano Marescotti) sends them on a final and possibly suicidal mission to rescue an important Roman family living north of Hadrian's Wall. Marius Honorius (Ken Stott) faces impending capture by the invading Saxons, who are invading from mainland Europe, led by their king Cerdic (Stellan Skarsgård) and his son Cynric (Til Schweiger). According to Germanus, Marius' son Alecto is the Pope's favourite godson and may be "destined to be Pope one day". Though angry, the knights follow Arthur once more, but only after he and Lancelot argue over Arthur's deeply held beliefs.

At the remote estate, Arthur discovers that Marius has immured pagans, including a Woad named Guinevere (Keira Knightley) and a small boy named Lucan. Arthur defies Marius and frees the captives before deciding to take everyone, along with Marius' family, back to Hadrian's Wall.

One night, Guinevere takes Arthur to meet with Merlin, the leader of the Woads and her father. At first, Arthur thinks Guinevere has betrayed him, but Merlin has come in peace. In a flashback, it is revealed that, when Arthur was a boy, his mother Igraine died in a Woad attack, and that, hoping to be able to rescue his mother from a burning building, Arthur ran to his father Uther Pendragon's burial mound to pull from it the legendary sword that marked it, Excalibur. Merlin suggests an alliance between the Woads and the Sarmatian knights against the invading Saxons.

Marius then betrays the group, takes Lucan hostage and attempts to kill Dagonet but is shot by Guinevere with an arrow. While moving on to the south, Alecto informs Arthur that Germanus executed Pelagius after being insulted by his teachings of equality. Tristan returns from scouting the area and tells Arthur that a Saxon army is close behind them. The knights stay behind to delay the Saxons and allow the refugees to escape. They soon encounter the Saxons at an ice-covered lake bordered on each side by steep cliffs. Greatly outnumbered, Arthur, Guinevere and the knights attempt to repel them with arrows. The battle is won when Dagonet runs to the middle of the ice and breaks it with an axe at the cost of his life. Many Saxons are also killed, and the rest are forced to turn back.

Upon their return to the wall, Germanus awards the knights their discharge papers and Dagonet is buried. Guinevere attempts to persuade Arthur to remain in Britain and defend the people from the Saxons. The pair have sex in Arthur's room prior to the Saxon army's arrival. Despite Lancelot's pleas, Arthur decides to stay and defend the wall, sending his knights away to live the rest of their lives in freedom.

Now in command of the Woad forces, Arthur prepares to face the Saxon army. As the knights are leading the evacuation, they hear the Saxon drums and turn back to join Arthur.

In the climactic "Battle of Badon Hill" set just south of Hadrian's Wall, the Woads catapult flaming missiles at the Saxon army. When the hosts meet, Guinevere engages in combat with Cynric. Cerdic fights and kills Tristan before facing off with Arthur. Meanwhile, Cynric savagely mauls Guinevere overwhelming her but is then engaged by Lancelot. Cynric shoots Lancelot with a Saxon crossbow. Lancelot then throws his sword into Cynric and kills him. Lancelot dies with Guinevere at his side. Arthur kills Cerdic and the Saxons are defeated.

While he realizes that his ideal Rome exists only in his dreams, Arthur despairs over the deaths of his men. The film ends with the marriage of Arthur and Guinevere, after which Merlin proclaims him to be their king. United by their defeat of the Saxons and the retreat of the Romans, Arthur promises to lead the Britons against future invaders. Three horses that had belonged to Tristan, Dagonet and Lancelot run free across the landscape, as the closing narrative from Lancelot describes how fallen knights live on in tales passed from generation to generation.