The film begins with a scene in Cao Cao's camp. Cao Cao's soldiers were in the midst of a game of Cuju and he was watching the game closely with his generals and advisors. Sun Shangxiang had disguised herself as a soldier and infiltrated Cao Cao's camp where she acted as a spy for the allied army. Cao Cao was impressed with the performance during the game by a soldier named Sun Shucai and appointed him as an officer in charge of a thousand men. Sun Shangxiang was secretly noting down details about Cao Cao's army and had sent reports to Zhuge Liang via a pigeon. She bumped into Sun Shucai, who did not suspect her identity, and the two of them became fast friends.
At the same time, some of Cao Cao's soldiers had died from an epidemic which was starting to spread amongst the troops. Cao Cao's army physician Hua Tuo advised him to cremate the corpses as soon as possible instead of burying them to prevent the epidemic from spreading further. However, Cao Cao decided to hold a ritual for the dead and sent the corpses on rafts towards the allied camp, hoping to contaminate the allied army as well. Some of the allied troops and civilians unsuspectingly brought the corpses ashore and started stripping them of whatever that was valuable left on them, such as armour. However, Zhuge Liang tested one of the corpses with a needle and found it to contain a contagious disease. He warned the allied army and had those who were in contact with the corpses quarantined.
Cao Cao's intention in sending the corpses to the allied army's camp was to pass the plague to them as well and affect the allied army's morale. Later, Liu Bei decided to leave the alliance with his followers, much to the frustration and disappointment of Sun Quan, Zhou Yu and the forces of Eastern Wu. Zhuge Liang stayed behind to assist the forces of East Wu. Before leaving, Zhao Yun told Zhou Yu, "We would meet again." When Cao Cao heard that the alliance had been broken and Liu Bei's forces had left, he was overjoyed and threw a celebration party. Cao Cao's naval commanders Cai Mao and Zhang Yun proposed a new tactic of locking the battleships together with chains to minimise rocking when sailing on the river and reduce the chances of the troops falling seasick. Cao Cao applauded this new proposed tactic and praised the commanders.
Subsequently, Zhou Yu and Zhuge Liang made plans on how to eliminate Cao Cao's naval commanders Cai Mao and Zhang Yun, and produce 100,000 arrows respectively. They agreed that whoever failed to complete his mission would be punished by execution under military law. As for Zhuge Liang, he predicted that there would be a fog three days later so he suggested shortening the deadline to three days instead of ten, as proposed by Zhou Yu. Three days later, Zhuge Liang set off with Lu Su along with a fleet of about 20 small boats covered with hay and straw, as well as mounted with scarecrows. Cao Cao's navy, led by Cai Mao and Zhang Yun, noticed the incoming enemy fleet and decided to engage the enemy but they did not dare to venture further into the battleground for fear of falling into an ambush, as there was a thick fog over the river. Cao Cao's army fired arrows at Zhuge Liang's fleet but the arrows were stuck in the hay and straw so Cao Cao's navy lost more than a hundred thousand arrows to the enemy in that single battle.
On the other hand, Cao Cao had sent Jiang Gan, who was a former fellow student of Zhou Yu, to the allied camp, in hope that Jiang might persuade Zhou Yu to surrender. Zhou Yu received Jiang Gan warmly and held a banquet in his honour. During the banquet, Zhou Yu performed swordplay and when he drew his sword, a piece of paper fell out from the scabbard. This drew the attention of Jiang Gan and he wanted to see what was written on it but Zhou Yu snatched it back and hid it into his sleeve. Later, Zhou Yu went out to meet Cheng Pu, who told him he had important military news to report. Jiang Gan eavesdropped on the conversation and overheard that Cai Mao and Zhang Yun were planning to rebel and kill Cao Cao. Jiang Gan was shocked and believed it to be true. Later that night, while Zhou Yu was apparently asleep, Jiang Gan secretly stole the letter from Zhou Yu's sleeve. He read it and verified that Cai and Zhang were indeed planning to assassinate Cao Cao and present Cao's severed head to Zhou Yu. Zhou Yu woke up suddenly and told Jiang Gan groggily this was meant to be a ruse before falling asleep again, but Jiang Gan believed that the letter was genuine.
Cao Cao received the letter from Jiang Gan who had returned from Zhou Yu's camp and read it, but he dismissed it as one of Zhou Yu's strategies to trick him into killing his subordinates. However, his suspicions increased after he heard that the navy led by Cai Mao and Zhang Yun which went out to engage the enemy fleet led by Zhuge Liang had lost tens of thousands of arrows to the enemy. He suspected Cai Mao and Zhang Yun of harbouring the intentions of killing him so he took another letter written by Cai to compare the handwriting and style of writing and verified that the letter was genuine, although it was a fake one. He remarked with sarcarsm that Cai Mao and Zhang Yun were very 'generous' in 'donating' arrows to the enemy, before having them executed on charges of treason. Later, he discovered that he been fooled and was furious with Jiang Gan so he had Jiang poisoned to death during a banquet.
In the allied camp, Zhuge Liang and Zhou Yu congratulated each other on having completed their respective missions. They were discussing their plans to launch an attack on Cao Cao's army, saying that Cao Cao would be angered after being fooled and would attack them within the next couple of days. At that moment, Sun Shangxiang returned from Cao Cao's camp after she managed to escape when her identity as a spy was uncovered, with the help of Sun Shucai. She had secretly noted down details of the conditions and formation of Cao Cao's army on a long piece of cloth which she wore on her body. Now that the East Wu forces were updated with information on Cao Cao's army, they planned their next move, which was to attack the enemy using fire. However, Zhou Yu realised that the North-West Wind was blowing at the moment, which was to their disadvantage if they were to attack using fire. Zhuge Liang then mentioned that he knew that it was possible for the wind to change direction and the South-East Wind would blow, but now that Cai Mao had been executed, no one else in Cao Cao's army knew about this special climatic condition.
In the meantime, Cao Cao was also planning to use fire to attack the East Wu army. Cao Cao personally inspected his troops and those who had been infected with plague. He made a speech and rallied the morale of his troops, such that even those who had fallen ill all stood up and cheered 'Victory!'. While in East Wu's camp, Zhou Yu and his generals were busy preparing fire-based weapons which can be ignited and hurled towards the enemy. Huang Gai proposed to Zhou Yu that he feign surrender to Cao Cao, so that their chances of victory would be higher. He wanted Zhou Yu to have him flogged severely with any excuse of breaking military law, but Zhou Yu did not heed his suggestion and said that he would not treat a good general in that manner. Before the battle, the forces of East Wu had a final moment together, feasting on glutinous rice balls to celebrate the Winter Festival. As for Liu Bei's forces, Liu Bei's subordinates were unhappy with him for leaving the alliance and gave him the cold shoulder, before picking up their weapons and leaving.
Zhou Yu learnt that his wife Xiao Qiao had secretly left the camp and travelled alone to Cao Cao's camp. Sun Quan told Zhou Yu that he would order a small army to encircle Cao Cao's camp and break in from behind to rescue Xiao Qiao but Zhou Yu refused, saying that the army must be united as one. Xiao Qiao journeyed to Cao Cao's camp alone and was received by a happy Cao Cao. She attempted to persuade Cao Cao to give up his ambition to conquer East Wu, for the sake of the common people and spare them of further bloodshed, but Cao Cao ignored her. She threatened to commit suicide but Cao Cao stopped her. Meanwhile, Zhuge Liang had returned to Liu Bei's camp and it was revealed that Liu Bei's departure from the alliance was in fact a ruse to put Cao Cao off guard. They were still part of the alliance. Xiao Qiao distracted Cao Cao by asking him to taste the tea she had prepared and she had a long chat with him on the art of tea to hold his attention while the allied forces were making plans for the fire attack which would be carried out at night.
The signal arrived when the South-East Wind started to blow and the allied forces launched their full attack on Cao Cao's army. Cao Cao was taken by surprise and he was suddenly seized with a headache. The smaller boats of East Wu burst into flames as they neared Cao Cao's naval forces and crashed into the larger battleships, setting them alight as well and the flames started to spread throughout Cao Cao's navy. On another front of the battleground, Liu Bei's forces started to launch their attacks on Cao Cao's forts. After the battleships had been set aflame, the allied forces launched a full-scale attack on Cao Cao's camp. A bloody battle ensued shortly after in which both sides suffered heavy casualties. Gan Xing of East Wu was wounded during the battle when hit by arrows and he decided to launch a kamikaze-style attack during his final moments by grabbing a bunch of explosives and throwing himself at the gates of the enemy fort, blowing up the gates as well as himself.
By dawn, Cao Cao's navy had been completely destroyed and he was only left with his ground army. The allied forces launched another offensive against Cao Cao's infantry and calvary and managed to break through Cao Cao's forts until they reached his main camp. The allied troops split into groups and enclosed themselves in shields to protect them from the fire and advanced towards Cao Cao's main camp. Another bloody battle started and eventually the allied forces had Cao Cao besieged in his main headquarters. Zhou Yu fought his way into the headquarters and met Cao Cao but both sides were pointing their swords at each other, but Cao Hong was also present there. Zhou Yu was faced with two opponents and retreated carefully until they were outside the headquarters. The allied commanders then reached the headquarters and were facing Cao Cao directly. Sun Quan had an arrow fitted to his bow and he wanted to shoot Cao Cao but when he saw that Cao Cao was holding Zhou Yu hostage he hesitated.
At that moment, Xiao Qiao appeared atop a tower beside the headquarters, being held hostage by Xiahou Jun. Luckily, Zhao Yun fought his way up the tower and knocked Xiahou Jun away from Xiao Qiao. Xiao Qiao fell off the tower but was rescued by her husband. Sun Quan fired the arrow at Cao Cao and hit Cao's hairband, which came loose and Cao Cao's hair flowed down. Now, the situation had been reversed and Cao Cao was at the mercy of the allied forces but eventually they decided to spare his life and tell him to leave and never to return. Before the film ends, Zhou Yu and Zhuge Liang are seen having a conversation, with Zhou Yu asking Zhuge Liang to stay and help to govern the world well instead of returning to his farming life. Zhou Yu also commented that he had forged an unforgettable friendship from the battle, which was an important lesson he learnt. Xiao Qiao then presented Zhuge Liang with the newborn foal, named Mengmeng, and told Zhuge Liang that she did not want to see her become a warhorse. The film then ends with Zhuge Liang walking into the far distance with Mengmeng.