In feudal Japan, young 12 year old eyepatched Kubo tends to his ill mother Sariatu in a mountain cave near a village. He earns their meager living by magically manipulating origami with music from his shamisen for the village folk and his mother, telling the tale of a samurai warrior named Hanzo, Kubo’s missing father. Kubo is never able to finish his story as he doesn’t know what happened to his father and his mother can’t recall the end of the story due to her deteriorating mental state. Sariatu warns him not to stay out after dark as her Sisters (his aunts), Karasu and Washi, and his grandfather, the Moon King (who took his eye when he was a baby) will be able to find him and take his remaining eye.
One day, Kubo learns of the village’s Bon festival allowing them to speak to deceased loved ones. Kubo attends but is angry that Hanzo does not appear from his grave, and forgets to return home before sunset. Sariatu’s Sisters, Karasu and Washi, quickly find him and attack, but Sariatu suddenly appears to protect Kubo. She uses her magic to send Kubo far away where they will never find him, telling him to find his father’s armor. Kubo grabs a strand of Sariatu’s hair before he is sent away.
Kubo wakes up in a distant land to find Monkey, his little wooden snow monkey charm, has come alive. Monkey tells him Sariatu is gone and the village destroyed, but they must find Hanzo’s armor. With help of “Little Hanzo”, an origami figure based on Kubo’s father, they track down the armor. Along the way, they meet Beetle, an amnesiac samurai who was cursed to take the form of a stag beetle/human hybrid but believes himself to have been Hanzo’s apprentice. Meanwhile, the Sisters track down Kubo’s trail.
Kubo, Monkey, and Beetle reclaim the “Sword Unbreakable” from an underground cave “Hall of Bones” guarded by a giant skeleton. They cross the Long Lake in an leaf boat to locate the “Breastplate Impenetrable” deep underwater. Kubo and Beetle swim down to retrieve it and encounter a sea monster, the “Garden of Eyes” who can entrance its victims with its many eyes by showing secrets. Kubo is caught in the creature’s sight, but while entranced, comes to realize that Monkey is the reincarnated spirit of his mother. Beetle rescues the unconscious Kubo and obtains the Breastplate, but returning to the boat, they find that Monkey has been badly wounded fighting and defeating Karasu. Their boat has been badly damaged in the battle but restored by Kubo and Monkey’s own magic.
They go to shore to recover, where Monkey explains that she and her Sisters had been ordered by the Moon King to kill Hanzo, but she instead fell in love with him, and the Moon King branded her an enemy. That night, Kubo dreams of meeting Raiden, a blind elderly man, who points him towards the “Helmet Invulnerable” in Hanzo’s abandoned fortress. They travel there the next day, but realize too late it is a trap set by Washi. Washi reveals that Beetle is Hanzo, who they had cursed for taking Sariatu away from them. She kills Beetle, and Monkey sacrifices herself, allowing Kubo the time he needs to use his shamisen to defeat Washi, breaking two of the three strings on it. Little Hanzo provides insight that the Helmet is actually the bell at the village, and Kubo breaks the last string to quickly travel there.
At the village, Kubo meets Raiden, who is revealed as the Moon King. He offers to take Kubo’s other eye as to make him immortal, but Kubo refuses. Raiden transforms into a giant centipede-like creature, the Moon Beast, and pursues Kubo and the remaining villagers into its cemetery. Kubo removes Hanzo’s armor that has proven ineffective, and instead restrings his shamisen using his mother’s hair, his father’s bowstring, and his own hair. With the instrument, he is able to summon the spirits of the villagers’ loved ones, who show the Moon Beast that memories are the strongest magic of all and can never be destroyed. Kubo and the spirits’ magic protects them and the villagers from the Moon Beast, eventually stripping him of his powers and leaving him a mortal human without any memories. Spurred on by Kubo’s stories, the villagers take compassion and tell Raiden he was a man of many positive traits, accepting him into the village. Kubo finally is able to speak to his parents’ ghosts during the subsequent Bon ceremony, as they watch the deceased villagers’ lanterns transform into golden herons and they fly to the spirit world into the sky.