A mysterious man walks into a decrepit boiler room, where he makes a sharp clawed glove and the rest in cinema history!
High school student Tina has a nightmare in which she wanders about in the same boiler room stalked by a killer with a burnt face. She wakes up to find slashes in her nightgown reminiscent of the killer’s glove. The next day, Tina’s best friend Nancy consoles her, and recalls a nursery rhyme, “One, Two, Freddy’s Coming for You”. Nancy’s boyfriend Glen advises her that it is just a dream, which works for him when he has nightmares. That night, Nancy and Glen stay at Tina’s. During their conversation, Tina discovers Nancy dreamed about the same killer. Tina’s boyfriend Rod crashes the sleepover in order to apologize for an argument they had earlier. They sleep together while Glen and Nancy sleep in adjacent rooms. Tina falls asleep and is again stalked by the killer, who pins her down in her back yard. Her struggles and screams awaken Rod, who witnesses her being stabbed by an invisible killer, before she is dragged up the wall and across the ceiling. Her screams alert Nancy and Glen who are unable to enter the room. When Tina falls dead onto the bed, Rod flees through a window. At the police station, Nancy is questioned by her father, Lieutenant Don Thompson, and she explains Tina dreamed someone was trying to kill her.
The next day, Rod grabs Nancy on her way to school and proclaims his innocence before he is arrested by Don. At school, Nancy falls asleep during class and follows Tina’s bagged body into a boiler room where the killer, who calls himself “Freddy” attempts to kill her until she burns her arm on a hot pipe, and wakes up in class. She discovers a similar burn on her arm, and becomes afraid of falling asleep. She falls asleep in her bathtub and Freddy tries to pull her under water, but Nancy escapes. Hearing from Rod that he has dreamed of the same killer, she suspects he is real and can kill people in their dreams. She has Glen watch her while she sleeps, and sees Freddy going after Rod, but he attacks her instead. She runs back to her room but is unable to wake herself up. When Freddy attacks her again, her alarm goes off and she wakes up. Nancy and Glen go to the police station, but are too late to save Rod, who is hanged in his cell in an apparent suicide, although it was actually an invisible Freddy who wrapped a bed sheet around his neck while he was asleep. After Rod’s funeral, Nancy’s mother Marge insists on taking Nancy to a dream clinic. While there, she has another nightmare and wakes up with a gash in her arm. She also discovers that she pulled out the killer’s hat, which Marge recognizes. Marge begins drinking heavily, and fortifies their house with security bars. When Nancy begs her to tell her what happened, Marge says that she and several parents in the neighborhood sought vigilante justice against a child murderer named Fred Krueger when he was released on a technicality, and they burned him to death.
Nancy, having been awake for seven days, decides to try to pull Freddy into the real world and convinces Glen to be there to knock him out. Glen’s parents, concerned about Nancy’s influence, prevent the two from meeting. Glen falls asleep and Freddy kills him by pulling him into his bed mattress. While Lt. Thompson is investigating, he receives a call from Nancy who tells him to break into her house in twenty minutes. She sets up booby traps and tucks her drunken mother in for the night. After falling asleep, Freddy does not reveal himself until the last ten seconds of her dream and she tackles him, pulling him into the real world. He chases her around the house, falling into Nancy’s traps, and is lit on fire. When Don arrives, they discover Freddy has gone upstairs and is smothering Marge with his burning body. Nancy knocks Freddy out by hitting him with a chair. Don comes into the room and puts out the fire. Freddy disappears, and Marge’s body vanishes into the bed. Sending Don away, Nancy follows Glen’s advice to turn her back on Freddy. Freddy rises out of Marge’s mattress, and she weakens him, calling him nothing and refusing to believe in him; Freddy vanishes before he can attack her. Emerging from her front door in broad daylight, Nancy finds her mother sober and wanting to give up drinking. Glen, Tina and Rod pull up in Glen’s car and Nancy gets in to go to school. The car develops a life of its own and traps them. Nancy screams for her mother, but the car drives away with the four. Marge is grabbed through the window of the front door by Freddy and pulled inside.