Late one night in 1938, insurance salesman Walter Neff returns to his downtown Los Angeles office in pain from a gunshot wound. He begins dictating a confession into a dictaphone for his friend and boss, claims adjuster Barton Keyes. The story, told primarily in flashback, ensues.

A year before, Neff meets the alluring Phyllis Dietrichson during a house call to remind her husband to renew his automobile insurance policy. They flirt, until Phyllis asks about taking out a policy on her husband's life without his knowledge. Neff deduces she is contemplating murder, and initially wants no part of it, but eventually devises a plan to murder her husband and trigger the "double indemnity" clause, which would double the payout.

Phyllis drives her husband to the train station for a trip to attend a college reunion. Neff, hiding in the back seat, breaks his neck. Neff then boards the train posing as Dietrichson and makes his way to the back of the train, stepping onto the platform outside to smoke a cigarette. He jumps off at a prearranged spot to meet Phyllis and drag Dietrichson's body onto the tracks.

Norton, the company president, believes the death was suicide, but Keyes scoffs at the idea. Keyes finds it strange that Mr. Dietrichson neglected to cash in his insurance policy after breaking his leg, and reveals to Neff that he suspects Phyllis of murder as she hides behind the door listening. Keyes concludes that she had an accomplice help murder her husband for the insurance money, but he needs proof. Norton refuses to pay out the accidental death clause, deducing that Dietrichson was unaware of the policy.

The victim's daughter, Lola, tells Neff she is convinced that her stepmother Phyllis is not only behind her father's death, but also that of Lola's mother, who died under suspicious circumstances when Phyllis was her nurse. Neff begins seeing Lola to keep her from taking her suspicions to the police. Later Neff fears Phyllis will murder Lola for her suspicions and because Dietrichson had changed his will in Lola's favour, leaving Phyllis with nothing.

Keyes brings in a witness who says the man on the train was younger than the dead man. Neff warns Phyllis that pursuing the insurance claim in court risks exposing the murder. He points out that Norton and Keyes are suspicious of her. He tries to convince Phyllis to lie low while he persuades Norton to pay out the claim. Lola tells Neff she has discovered that her hotheaded boyfriend Nino has been visiting Phyllis behind their backs. Neff sees this as a way to get rid of Phyllis before she can murder Lola.

Neff meets Phyllis and says he knows about her and Nino. He guesses that she was planning to manipulate Nino into murdering Lola and maybe him, but says he will kill her and put the blame on Nino. Phyllis shoots him in the shoulder. He dares her to shoot again. She does not, and he takes the gun. She says she never loved him "until a minute ago, when I couldn't fire that second shot." As she hugs him, Neff says "Goodbye, baby," and shoots twice, killing her.

Outside, Nino comes to the house; Neff advises him to call Lola from the drugstore's phone instead of going inside the house. Neff drives to his office and starts his dictaphone confession, returning to the start of the film. Keyes arrives unnoticed and hears the truth. Neff says he plans to flee to Mexico, but collapses before he can leave the building. Keyes lights Neff's cigarette as they wait for the police and an ambulance.