Though the story is set on an island in Costa Rica, filming took place in Mexico.
Pleasure Island is a resort off the coast of Costa Rica, owned by famous musician Coconut Pete. Staff members Rolo, Stacy, and Kelly sneak into the jungle to have sex. They are ambushed by a masked figure, who stabs Rolo to death. The killer chases the girls through the jungle. The killer pushes Kelly off a cliff and decapitates Stacy before she can reach help.
The resort staff remain unaware of the killings until Carlos' body is found behind the kitchen. Dave relates a story about a former employee who lost his mind and murdered his fellow staff members; though Pete insists it's a story made up to scare guests around the campfire, the mounting death toll suggests otherwise. Putman alerts the others when he finds Cliff murdered in a hedge maze. A message left by the killer suggests that he is targeting only the staff. All communication devices and transportation have been stolen or destroyed.
Hank, a former FBI agent, convinces the staff to continue with their jobs and allow him to catch the killer. Yu remains intent on warning the guests, despite warnings not to do so from the killer. When she lures the guests to the beach to make the announcement, she is attacked by the killer. Hank intervenes, but the killer slashes his throat and turns on Yu. Their bodies are found the next day.
The staff begins to suspect one of the guests, Penelope. Juan, believing her innocent, tries to eliminate her as a suspect. Putman disappears into the jungle after having a nightmare. Sam and Dave find a shrine of photos of Lars and his friends, in which all of the faces except Lars' have been replaced with Pete's; suspicion turns on Lars and the staff lock Lars in a room. The killer electrocutes one of the guests, causing a power failure. Putman returns, and he and Jenny deduce that Lars is not the killer, but Lars has escaped.
When Pete is found dead, the staff members turn on each other. Jenny tries to convince the group that they must work together to survive until the shuttle from the mainland returns for the guests. They reject this and split into smaller groups. Dave manages to restore the electricity. Jenny and Lars are drawn by music to the electricity hut where they find Dave's severed head. Putman is next to be killed.
During a party in the nightclub, Jenny and Lars discover Dave and Putman's bodies. The guests see the corpses and a panic ensues. Penelope, Juan, Lars and Jenny find Sam's apparently lifeless body in a mud bath. While they consider their next move, Sam leaps from the bath with a machete and grabs Lars.
Sam reveals that he wanted to kill everyone on the island because Pete had intended to sell the island to the military, but decided to give the island to Dave. Jealous, Sam decided that Dave would mismanage the resort and destroy it. Lars grabs the machete, allowing the others to escape. Penelope is lost among the party-crazed guests, and Jenny and Juan lock themselves in the nightclub. They see Sam drowning Penelope in a large tank. Juan smashes the tank and rescues Penelope. Sam prepares to kill them, but Lars appears and stabs Sam.
Sam pursues Lars, Jenny, Penelope, and Juan as they escape through the jungle. Cornered on a cliff, they jump to the water below. They find the resort's damaged boats, and try to cobble together enough working parts to leave the island. Sam appears and kills Juan, then attacks Jenny and Penelope. Lars overcomes Sam, and Sam is bisected by a rope attached to the power boat. As they motor away, Sam's lower half continues to pursue them despite his fatal wounds.
On one of the disc's commentary tracks the filmmakers state that they screened the film for Jimmy Buffett, who was so amused that he requested permission to sing some of the film's songs on one of his live tours.
Club Dread has received mixed reviews, scoring 45 on review aggregator site Metacritic based on 28 critics reviews, and 29% on Rotten Tomatoes based on 96 reviews. According to Rotten Tomatoes the consensus was "Comedy is too hit-or-miss in this slasher spoof".
In 2005, an unrated edition was released to DVD. This version of the film contains an additional 15 minutes of footage for a 118-minute running time. It features several extended scenes, and also restores a subplot involving two cops (played by Paco Mauri and Tony Amendola) that was absent in the theatrical edition. Director Jay Chandrasekhar states in one of the disc's commentary tracks that the original R-rated version is still the director's cut.