In Brazil, various exotic birds are smuggled out of the country. In Moose Lake, Minnesota, a crate with a male Spix's macaw hatchling falls out of a truck and is found by a little girl named Linda Gunderson, who names him Blu. Over the next 15 years, Linda comes to own a bookstore. Highly domesticated and unable to fly, Blu is ridiculed frequently by the Canada geese that come by outside of Linda's bookstore.
One day, ornithologist Tulio Monteiro invites Blu and Linda to Rio de Janeiro on the condition that Blu, who is the last male of his species, mates with a female macaw. Linda accepts and they fly to Rio, where Blu meets a red-crested cardinal named Pedro and his yellow canary friend Nico. At Tulio's aviary, Blu meets Jewel, a fiercely independent Spix's macaw longing to flee back to the wilderness. The macaws are captured by Fernando, an orphaned boy, and a sulphur-crested cockatoo named Nigel, both of whom work for a group of smugglers led by Marcel, who wants to leave the country as soon as possible to secure a black market deal regarding Blu and Jewel. While Fernando has second thoughts about his actions, Nigel tells the macaws that he desires to exact revenge on "pretty birds" after his role on a television program had been ruined by one. However, because of Blu's familiarity with cages, they flee into the jungle. Fernando meets Linda and Tulio and helps them find the birds, while Blu and Jewel meet Rafael, a toco toucan, who offers to take them to his bulldog friend, Luiz, to remove their leg chain. He attempts to teach Blu how to fly, before they meet up with Pedro and Nico. Meanwhile, Nigel hires a horde of thieving marmosets led by Mauro to capture Blu and Jewel. Pedro and Nico then take the two birds to a Rio-style dance party, where they perform a duet and begin to fall in love, but encounter the marmosets in the process. The birds fight them off while the five escape on a tram. Fernando takes Linda and Tulio to the smugglers' hideout, where they discover that the birds have already been moved out. Marcel explains that he will use the Rio Carnival parade to smuggle the birds to the airport, as the other streets have been blocked off for the festivities. Meanwhile, Blu and the others meet Luiz, who releases the chain holding Blu and Jewel. After the two get into a heated argument, they decide to go their separate ways.
Pedro and Nico then witness Nigel capturing Jewel. When Blu and Rafael learn of it, they rush to the carnival to rescue her. Meanwhile, Linda and Tulio have spotted the smuggler's parade float and organize a rescue attempt for the birds. As Linda and Túlio pose as dancers in Spix's macaw costumes, Nigel captures Blu and the group. Linda and Tulio are unable to stop the smugglers in time and Marcel's group takes off in a Short Skyvan. During the flight, Blu destroys his cage using a fire extinguisher and releases the other captive birds. However, Nigel attacks the macaws, injuring Jewel. Blu sends Nigel flying into the plane's engine using the fire extinguisher, causing the plane to fall. The smugglers flee the plane. Unable to fly, Jewel falls out of the plane's open cargo hatch towards the ocean. Jumping out of the plane to rescue her, Blu finally discovers that he is able to fly as he and Jewel kiss, and he carries her to Linda and Tulio for help. Later, they adopt Fernando and organize a sanctuary to protect the jungle from smugglers. Blu and Jewel eventually raise three children together, and fly above the jungle, joined by Linda, Luiz, and Tulio in a hang-glider. Meanwhile, Nigel survives the plane accident but is ridiculed for his loss of feathers, and the smugglers except for Fernando, are sent to jail.