The narrator has insomnia, which he believes to be caused by the frequent air-traveling required by his work (he works as a recall coordinator). When he goes to his doctor and asks for medication, his doctor suggests to go to various disease support groups to realize that insomnia isn't real suffering. The narrator follows this advice, and begins to go to various support groups for diseases such as brain parasites and cancer. At these places he pretends to be a dying person himself, and he finds that by crying and connecting with all the other dying people he somehow sleeps better at night. However, at the support groups he begins to notice that there is a woman— named Marla— who also doesn't have any diseases. With her presence, he cannot bring himself to cry, and in turn loses his sleep.
Anyway, one day when returning from a business trip, he finds out that his house has been blown up by a gas explosion. So he calls Tyler, whom he has met on a nudist beach. Tyler agrees to let the narrator move into his house, and while being drunk, the two men started a fist fight with each other. They discovered that they both enjoyed the experience, so they started up a fight club, where men can participate in fights every week. The narrator soon finds fight club to be the most important thing in his life.
Meanwhile, Marla and Tyler enters a relationship after Tyler saves her life by intercepting her attempted-suicide.
After a while, the fight club evolves into Project Mayhem, an operation in which a group of low-status men attack the consumerist society by doing various things such as destroying rich people's cars and drilling bank machines. Before joining the project though, each person is informed that they have to be prepared to kill and be killed.
One day the narrator notices that the others seem to think that he is Tyler, and he realizes that he is indeed Tyler! Tyler is not a separate person, but a separate personality that takes over at night when the narrator tries to sleep. Tyler is the source of the narrator's insomnia.
Soon after, a member of project mayhem— whom the narrator has first met in one of the support groups— gets shot dead by the police. The narrator begins to find Tyler's actions terrible, to find Project Mayhem terrible, and wants to get rid of him. He tells Marla to watch him closely so that he can undo whatever Tyler does. However, Tyler goes on to kill two more people before attempting to commit suicide— to die as a legend—on the top of the building.
At this point, Marla arrives and suddenly Tyler is gone (he loves Marla). The narrator tells her to leave the building because the explosion is going to occur soon, but stays on top because he wants to take the responsibility of finishing Tyler off. And when the explosion doesn't occur due to some chemical errors, the narrator shoots himself.
Miraculously, the narrator doesn't die. He goes to an asylum, where he believes he is in heaven.