Aladdin, a street urchin in the Arabian city of Agrabah, and his monkey Abu meet Princess Jasmine, who has snuck away from her sheltered life in the palace. Jasmine wishes to succeed her father as Sultan, but is instead expected to marry one of her royal suitors, including the dimwitted Prince Anders. Jafar, the grand vizier, schemes to overthrow the Sultan and seeks a magic lamp hidden in the Cave of Wonders, but only "the diamond in the rough" can enter the cave.
After sneaking into the royal palace and visiting Jasmine, Aladdin is captured by Jafar. He offers to make Aladdin rich enough to impress Jasmine in exchange for retrieving the lamp, and warns him to take nothing else. Inside the cave, Aladdin frees a magic carpet and finds the lamp, but Abu couldn't resist the treasure and causes the cave to collapse. Aladdin gives the lamp to Jafar, who kicks him and Abu into the cave, but Abu steals the lamp back.
Trapped in the cave, Aladdin rubs the lamp, unwittingly summoning the omnipotent Genie inside, who explains that he has the power to grant Aladdin three wishes. Aladdin tricks the Genie into freeing them from the cave without using a wish. Determined to woo Jasmine, he uses his first wish to become a prince, and promises to use his third wish to free the Genie from servitude and turn him human.
Aladdin makes an extravagant arrival at Agrabah as Prince Ali of Ababwa, but fails to impress Jasmine. Posing as the “prince’s” human servant, the Genie is mutually smitten with Dalia, Jasmine’s handmaiden. Aladdin and Jasmine bond when he takes her on a ride on the magic carpet. Tricked into revealing his true identity, he convinces her that he actually is a prince and dressed like a peasant to explore Agrabah.
Jafar discovers Aladdin's identity and throws him into the palace moat, knowing that if he survives, it will prove he has the lamp. The Genie saves Aladdin, at the cost of his second wish. Aladdin returns to the palace and destroys Jafar’s magic staff, ending his spell over the Sultan and exposing his plot, and Jafar is imprisoned. The Sultan allows Aladdin to marry Jasmine. Aladdin decides to save his final wish, aware that he will lose Jasmine if the truth unfolds, much to the Genie's disappointment.
Freed by his scarlet macaw sidekick, Iago, Jafar steals the lamp and becomes the Genie's new master. He uses his first wish to become sultan, but Jasmine reminds the palace guards of their true loyalty, turning them against Jafar. Using his second wish to become the world's most powerful sorcerer, Jafar exposes Aladdin and exiles him and Abu to a frozen wasteland, then threatens to kill the Sultan and Dalia unless Jasmine agrees to marry him. At the wedding, Jasmine seizes the lamp and escapes with Aladdin and Abu, who were rescued by the magic carpet. Pursued by Iago, whom Jafar briefly transforms into a roc, they are recaptured, destroying the magic carpet in the process.
Aladdin taunts Jafar for being second in power to the Genie, goading him into using his last wish to become “the most powerful being in the universe”, and the Genie transforms Jafar into an even more powerful genie. This traps Jafar inside his own lamp, dragging Iago with him, and the Genie banishes them to the Cave of Wonders. Aladdin keeps his promise and uses his last wish to free the Genie, allowing him to live as a human without magical powers. The Sultan crowns Jasmine the new sultana-regnant, no longer bound to marry a prince, and she and Aladdin marry. The Genie marries Dalia and they start a family and explore the world together.