Set in late Medieval Europe in the 1370s, the story begins with the protagonists and squires, William (Heath Ledger), Roland (Mark Addy) and Wat (Alan Tudyk), discovering their master, Sir Ector (Nick Brimble), dead of his wounds in the middle of a jousting tournament. He was ahead "three lances to none" and merely had to finish the final round to win the tournament and be awarded the money that was to buy food for them all. While Wat and Roland resign themselves to destitution now that they no longer have Sir Ector's employment and protection, William Thatcher takes the armour, and more importantly the helm, from Ector's body and poses as the noble to finish the match. William's inexperience is evident, as he disappointingly receives a lance blow to the face mask, but regardless wins the tournament (and the money) due to Ector's previous lead. This gives William the idea that, with proper training, he and his companions could make a living in jousting.


Along the way to his first tournament in Rouen, William and his friends come upon Geoffrey Chaucer (Paul Bettany), "trudging" down a road with no clothes or money. William persuades the writer to fake his patents of nobility, as it is illegal for peasants to joust, and joins the jousting circuit under the pseudonym of "Sir Ulrich von Liechtenstein" from Gelderland. Chaucer is then discovered to have a terrible gambling problem, which William saves him from by paying his debts with his tournament winnings, and therefore gains Geoffrey's true loyalty (and services as a herald at the tournaments). Helped by Chaucer, Wat and Roland, he begins to win match after match. When his armour—still the same suit taken from Sir Ector—becomes loose and damaged, he gains an addition to his fellowship, Kate the Farrier (Laura Fraser), who makes him revolutionary new armour and decides to travel with them. William soon meets and falls in love with a noble lady, Jocelyn (Shannyn Sossamon), who has already been noticed by the evil yet powerful Count Adhemar (Rufus Sewell). A rivalry begins between the two of them for the affection of Jocelyn and the accolades of the tournaments, and Adhemar defeats William in his first tournament.


In the following tournament, they are both assigned to tilt against Prince Edward (James Purefoy), who has entered under the name "Sir Thomas Colville," hoping he will get a rare chance to compete if his opponents do not know that the man whose life they are endangering is the Prince of Wales. Adhemar learns his identity and withdraws at the last minute, not willing to take the risk. When William's turn comes, however, his competitiveness overcomes the pressure to withdraw, and he jousts with Edward (to Edward's surprise and pleasure) and wins the tournament, along with Edward's respect. Following this good omen, Will's companions, Wat, Roland, Kate and Geoff, gamble all of their share of the money that William will win the French tournament in Paris. Coincidentally, and simultaneously, Jocelyn tells William that he must lose the tournament to prove his love to her. After he openly accepts defeat after defeat, she changes her mind; that is, he must now win to prove his love. He does win the tournament, which is followed by a romantic scene.


The group travels to London for the World Championship, and an important flashback to William's childhood is shown. His father, wanting the best for his son, reluctantly gives him over for squire services to Sir Ector, so that someday, he can realize his dream of becoming a knight and "change his stars" to live a better life than his father. Returning to the present—and to London for the first time since childhood—William, assuming that his father has long since died, visits his old neighborhood and inquires of a young local girl whether or not she remembers his father. She informs him that he is in fact still alive and well, albeit blind. William visits his father, concealing himself at first using his alias Ulrich, until he tells his father that he has a message from his son William—that he has changed his stars after all. His father, overcome with joyous emotion, realizes it is actually his son, and they embrace and spend hours catching up.