Mr. Jones is the negligent and drunken owner of Manor Farm, and the farm animals bear the brunt of his cruelty. While Jones is on a drinking binge with his neighbors, the Pilkingtons, the animals meet in the barn to hear an oration delivered by the show pig, Old Major. He tells the animals that humans are the source of their misery. He teaches them an anthem that encourages rebellion against human control.

Jones, investigating the noise, accidentally shoots Old Major. The next day, two pigs – Snowball and Napoleon – tell the animals that they should act on Old Major's encouragement to rebel. A few months later, when Jones's neglect of the animals has grown intolerable, the animals take strength from their anthem and run Jones, his men, and his wife off the farm. The animals are now in charge. Snowball changes the sign on the gate to read "Animal Farm" and paints a series of commandments on the wall of the barn. Among them are the decrees that no animals shall sleep in beds, and all animals are equal.

Life settles into a pattern. The animals work, and the pigs supervise. Snowball tutors the animals in Old Major's teachings, which are now referred to as Animalism. For the slower animals, especially the sheep, Animalism is reduced to the slogan, "four legs good, two legs bad."

Some dissatisfaction arises: the animals are outraged to learn that the pigs are keeping all the milk and apples for themselves. Napoleon and his side-kick, Squealer, wheel a TV into the barn and the animals settle down to watch, their concerns forgotten. In the meantime, Jones and his men have set up a radio receiver to eavesdrop on the animals. They decide to attack the farm to take it back. In the battle that ensues, the humans are defeated. Snowball's efforts are instrumental, but Napoleon and Squealer only come out from cover at the end of the battle when victory is clear.

We next see the animals a few months later. Snowball has organized the animals to build a windmill, but Napoleon opposes the idea. Napoleon uses the disagreement as an opportunity to take charge: he calls upon a fierce dog guard he has secretly trained to chase Snowball away. He tells the animals that Snowball is a traitor and then, confusingly, endorses the windmill effort as his idea all along. He declares that a special committee of pigs will run the farm and any resistance from the animals is quieted by the dogs.

Meanwhile, the humans learn from their surveillance that the animals can talk. Pilkington makes a visit to the farm and makes trade arrangements with Napoleon – leaving him with a gift of a bottle of whiskey. Napoleon makes a formal address and announces that for the good of Animal Farm he will shoulder the burden of trade. The animals begin to grumble that the pigs are breaking the commandments of animalism: living in the house and sleeping in beds. Squealer explains that the commandment prohibits sleeping in a bed with sheets. Indeed, this is now how the commandment now reads on the side of the barn.

The Jones' take their revenge by dynamiting the nearly completed windmill. Napoleon announces that responsibility lies with the traitor Snowball and that all animals must continue to sacrifice to rebuild it. Squealer declares that the anthem Old Major taught the animals has been replaced with a song praising the leadership of Napoleon.

The animals are not getting enough to eat. Napoleon announces that Snowball's sabotage is responsible, and as a result, the hens must give up eggs to sell. They refuse. In response to this first hint of insurrection, the animals are shown a newsreel-style film documenting the executions of animals found guilty of treason. Glowing reports in the film of happiness, productivity, and good leadership contrast ironically with the real state of affairs: the hungry, over-worked animals are lorded over by pigs drunk on whiskey.

More signs point to Napoleon's tyranny. Boxer, the loyal carthorse, suffers an accident as a result of overwork and Napoleon promises that he will be taken to a hospital, but the animals see him being taken away in a truck with the words "horse slaughterer" on the side. The pigs set up another newsreel showing a demonstration that Napoleon has staged. He walks up to a podium – on two legs – and the sheep chant a new slogan: "four legs good, two legs better." The last commandment is altered to read: "All animals are equal, but some are more equal than others."

The sheepdog, Jessie (whose puppies were taken to become the guard dogs) resolves to lead an escape attempt. In a flash forward, we see the few animals who escaped return to the farm to investigate during a big rainstorm. The former Animal Farm seems to have collapsed into decay and pollution. One of Jessie's children emerges from the ruin and greets her without hostility. We see in another flash forward that a new family will run the farm and a new generation of Jessie's puppies will live there in happiness.