A mysterious man makes a glove with knives for fingers. In an eerie, nightmarish setting, Tina Gray is chased into a boiler room and attacked by the man wearing the glove. Tina screams herself awake and finds her nightgown slashed. At school, Tina tells her boyfriend, Rod Lane, her friend, Nancy Thompson, and Nancy’s boyfriend, Glen Lantz, about the nightmare and Nancy also admits to having a bad dream. That night, Tina’s mother is away so Nancy and Glen stay over, and Rod arrives unexpectedly. After Rod and Tina make love, Rod admits he has nightmares too. A noise awakens Tina and she checks outside. A disfigured man wearing a hat, a red and green striped sweater and the finger-knives chases her. When he catches her, Tina is suddenly in the bedroom. Rod awakens to find her screaming but he cannot see anyone else. Tina’s chest is ripped open and blood flies as she swings around the room. Rod escapes as Nancy and Glen rush in and find Tina’s body. Lieutenant Thompson, Nancy’s father, is certain Rod is the killer and angry that his ex-wife let Nancy stay at Tina’s. As Nancy walks to school the next morning, Rod grabs her and says he did not kill Tina. Following his daughter, Thompson arrests Rod. In English class, Nancy falls asleep but wakes up to see Tina in a body bag being dragged off by an unseen person. It is dark as Nancy follows the blood trail and finds herself in a boiler room. Suddenly, the disfigured man, identifying himself as “Freddy,” chases her. Nancy screams that it is only a dream, burns her arm on a steam pipe and wakes up in class screaming, with a burn on her arm. She visits Rod in jail and he insists someone else killed Tina. At first, Rod had thought it was one of his nightmares because all he saw were the knife wounds appearing on Tina’s body. At home in her bathtub, Nancy falls asleep and finger-knives pull her under water into an abyss. She escapes back up in to the bathtub and takes pills to stay awake. After Glen, who lives across the street, climbs in her window to check on her, Nancy asks him to stand guard while she searches for Freddy in her sleep. In her dream, Nancy finds herself at the police station and sees Freddy enter Rod’s jail cell. She calls for Glen to wake her, but instead Freddy chases her back to her house where Glen is asleep. Freddy attacks Nancy but her alarm clock rings, waking Nancy and Glen. They rush to the police station and Nancy begs her father to check on Rod. In the cell, Rod’s sheet wraps around his neck in a noose, then drags him around the cell and hangs him. At Rod’s funeral, Nancy tries to describe Freddy to her parents but they insist on getting her help. At a sleep disorder institute, Nancy dreams, the monitors go crazy and she screams hysterically. They wake her to find Nancy has a grey streak in her hair, her arms are slashed and she has brought Freddy’s hat out from her dream. Later, Nancy’s mother hides the hat with her vodka bottle, but Nancy finds it and points to the name inside – Fred Krueger. Her mother insists Krueger is dead. The next day, Glen and Nancy discuss their nightmares, and Glen mentions he read about the Balinese dream skill of turning your back on a monster to take its power away. Nancy shows him a book on booby traps and survival skills. Nancy returns home to find her mother has installed security bars. Nancy’s mother leads her to the basement and tells her about Fred Krueger, a child murderer. After he was freed on a technicality, a group of neighborhood parents found Krueger in his boiler room and set it on fire. Nancy’s mother took his finger-knives glove and assures Nancy it is safe to sleep because Krueger is dead. But Nancy knows she is not safe and calls Glen. She plans to bring Freddy back from her dream and wants Glen to catch him. They agree to stay awake and meet at midnight but when Nancy starts to leave, she finds her mother drinking in the hallway. She calls Glen but his parents answer, insist it is too late and hang up. Nancy’s phone rings and when she hears knives screeching, she yanks it from the wall. The unplugged phone rings and Freddy announces he is her boyfriend now. A large tongue extends from the phone and licks Nancy. She runs to save Glen but the front door is locked and her drunken mother will not give Nancy the key. Glen is asleep when Freddy pulls him into a hole in the middle of the bed and a torrent of blood explodes. Paramedics, police and Nancy’s father arrive. She calls Glen’s house and tells her father that she is going after Freddy in her dreams and wants him to catch Freddy when she brings him out at 12:30. Her father tells her to get some sleep and orders an officer to watch Nancy’s house. Nancy booby traps the house, sets her alarm clock and goes to sleep. In her dream, she searches boiler rooms until she finds Freddy. He chases her when she jumps from the boiler room into her front yard. As Nancy’s alarm rings, she leaps on Freddy, pulling him out of the dream and into her bedroom. Nancy runs from the room and screams out the window for help. Freddy opens the bedroom door and is hit by a sledgehammer. He follows Nancy downstairs and trips a wire that explodes a lamp. He chases Nancy to the basement where she douses Freddy with gasoline and sets him on fire. Her father rushes into the house and Nancy leads him toward the basement but flaming footsteps lead to her mother’s bedroom. They arrive as the burning Freddy attacks her mother. As they smother the fire, Freddy vanishes and her mother’s corpse disappears into the mattress. After Nancy sends her father downstairs, Freddy rises from the bed. Nancy faces Freddy and takes back the energy she gave him. It is just a dream and she wants her mother and friends back. As Nancy turns her back on Freddy, he reaches to attack but disappears. Nancy opens the bedroom door and finds herself outside on a sunny yet slightly foggy day. Her mother joins her and promises to stop drinking. Glen, Tina and Rod arrive in a red convertible and Nancy happily gets in. A red and green striped convertible top suddenly locks into place and the windows shut, trapping the teens as the car drives off. Nancy’s mother waves until Freddy’s arm smashes through the front door window and pulls her inside. Children on the lawn play jump rope and sing, “One, two, Freddy’s coming for you.”