In 1912, 13-year-old Indiana Jones is horseback riding with his Boy Scout troop in Utah. He discovers robbers in a cave who find an ornamental cross which belonged to Coronado and steals the cross from them. As they give chase, Indiana hides in a circus train. Although he escapes, the robbers bring the sheriff, and Indiana is forced to return it. Meanwhile, his oblivious father, Henry Jones, Sr., is working on his research into the Holy Grail, keeping meticulous notes in a diary. The leader of the hired robbers, dressed very similarly to the future Indiana and impressed by the young Indiana's tenacity, gives him his fedora and some encouraging words.

In 1938, after recovering the cross and donating it to Marcus Brody's museum, Indiana is introduced to Walter Donovan, who informs him that Indiana's estranged father has vanished while searching for the Holy Grail, using an incomplete inscription as his guide. Indiana then receives a package by post which turns out to be his father's Grail diary, containing his father's research. Understanding that his father would not have sent the diary unless he was in trouble, Indiana and Marcus travel to Venice, where they meet Henry's colleague, Dr. Elsa Schneider. Beneath the library where Henry was last seen, Indiana and Elsa discover catacombs and the tomb of a knight of the First Crusade, which also contains a complete version of the inscription that Henry had used, this one revealing the location of the Grail. They flee when the catacombs are set aflame by The Brotherhood of the Cruciform Sword, a secret society. Indiana and Elsa are pursued and escape on a speedboat, and a chase through Venice ensues in which they capture the secret society's leader, Kazim. After Indiana convinces him of their legitimate intentions, Kazim explains that The Brotherhood are protecting the Grail from those with evil intentions, and that Henry was abducted to Brunwald Castle on the Austrian-German border.

Indiana infiltrates the castle and finds his father, but learns that Elsa and Donovan are working with the Nazis, hoping that Indiana would discover the location of the Grail for them. The Nazis capture Marcus, who had traveled to Hatay, Turkey with a map that Henry had drawn to show the route to the Grail's hiding place. The Joneses are able to escape and recover the diary from Elsa at a Nazi rally in Berlin while barely escaping possible arrest by Adolf Hitler. On a Zeppelin and later a plane they escape from Germany. They then meet Sallah in Hatay, where they learn of Marcus' abduction and that the Nazis are already moving to the Grail's location. With the help of The Brotherhood, the Joneses ambush the Nazi convoy and rescue Marcus. Donovan and Elsa continue on to the Canyon of the Crescent Moon, the location of the Grail.

Indiana, Henry, Marcus, and Sallah catch up and find that the Nazis are unable to pass through traps set before the Grail. After the four are discovered, Donovan shoots Henry, mortally wounding him, and thus forces Indiana ("The healing power of the grail is the only thing that can save your father now") to circumvent the traps by using the information in his father's diary, with Donovan and Elsa following. Indiana succeeds and finds himself in a room with the last Knight, kept alive with the power of the Grail, which has been hidden among dozens of other cups. Elsa selects a gilded cup encrusted in jewels for Donovan; when Donovan drinks from it, he rapidly decays and crumbles into dust. Indiana, recognizing that the Grail would be that of a humble carpenter instead of a wealthy king, selects the plainest-looking cup in the group, which turns out to be the correct vessel. He fills it with water and quickly takes it to his father, pouring the holy water onto his chest and giving it to him to drink, which instantly heals his gunshot wound. As they prepare to leave, the Knight warns them to not take the Grail past the great seal in the temple's floor, but Elsa disobeys, causing the temple to collapse. Elsa falls to her death into an abyss while attempting to recover the Grail; Indiana nearly suffers the same fate until his father tells him to let it go. The Joneses, Marcus, and Sallah narrowly escape the collapsing temple, while the Knight watches them with his mission accomplished. The four then ride out of the canyon, and into the sunset.