Karen races to the house upon learning Doug has ventured there to look for her, experiencing a vision in which she sees Peter visiting the house and finding Kayako's corpse. Karen finds Doug paralyzed by fear, and attempts to flee the house with him, only to witness Kayako drag herself down the stairs and crawl on Doug, causing him to die of fright. Karen spots the petrol and manages to ignite it with Doug's lighter just as KayakThe Grudge describes a curse that is born when someone dies in the grip of a powerful rage or extreme sorrow. The curse is an entity created where the person died. Those who encounter this evil supernatural force die and the curse is reborn repeatedly, passed from victim to victim in an endless, growing chain of horror. The following events are explained in their actual order, the film showing them in a non-linear narrative.

The Saeki family lived happily in suburban Tokyo, but housewife Kayako Saeki fell in love with her son's teacher, Peter Kirk, obsessively writing about him in a diary. However, her husband Takeo discovered the diary, believing Kayako was having an affair, and becomes mentally disturbed, murdering his wife. He then drowned his young son Toshio in the bathtub to cover his tracks, along with the pet cat, Mar. Takeo hid the bodies in the attic and closet, before committing suicide by hanging himself. Peter comes to the Saeki house to speak with Kayako, only to find her corpse. Devastated, he flees the house, committing suicide the next day before his wife. The family rise again as ghosts due to their rage and sorrow, notably Kayako, who appears as an onryō ghost, leaving the curse on the house.

A few years after the Saeki family dies, the Williams family move in from America. While husband Matthew is thrilled with the house, his wife Jennifer and dementia-ridden mother Emma feel uncomfortable. Jennifer is quickly consumed by the curse. Matthew returns home to find the house trashed, Emma upset, and his wife dying. Matthew and Jennifer are killed by Toshio. Yoko, a careworker, arrives at the house the next day to find Emma alone, and encounters Kayako, who attacks her. Concerned about Yoko's disappearance, her employer Alex sends another careworker, Karen Davis, to take over the care for Emma. At the house, Karen is shocked when she finds a seemingly alive Toshio and Mar in the closet, contacting Alex for help.

Alex finds Emma dead in the house and Karen in a state of shock, and summons the police, including Detective Nakagawa. Nakagawa and his partner Igarashi explore the house, finding the bodies of Matthew and Jennifer in the attic along with a bottom jaw. Matthew's sister Susan disappears after being attacked by Kayako, and Alex is murdered when visited by a Kayako-possessed Yoko. Karen begins to be haunted by Kayako herself, informing her boyfriend Doug of the situation. She researches the origins of the house, eventually confronting Nakagawa, who explains three of his colleagues investigating the Saeki deaths all were consumed by the curse. That night, Nakagawa goes to the house and tries to burn it down, but is killed by Takeo.

o is about to kill her. Karen is whisked to hospital, but learns the house survived the fire. Visiting Doug's body, Karen realizes she is still haunted by Kayako, who appears behind her.