The film opens with George (David Gilliam) and two women (Juli Drajkó and Judit Viktor) running through the woods. The women fall into a large pit trap while George is caught by a snare. As he hangs helplessly, a masked man approaches and disembowels him with a knife.
What is later revealed as some days prior to this, the European Sales division of Palisade Defence military arms corporation are on a bus to a team-building weekend at a "luxury lodge" in the Mátra Mountains of Hungary. When a fallen tree blocking the road halts the bus's progress, the driver (Sándor Boros) refuses to take a dirt road through the woods and, after an argument, drives off leaving the group to walk the remaining distance to the lodge.
Eventually the group reaches the lodge, which is old and in serious disrepair, but the manager Richard (Tim McInnerny) convinces the wary but tired group to enter. Inside, Harris (Toby Stephens) discovers a file cabinet full of cryptic Palisade documents, written in Russian. The group discusses the documents, leading Harris to relate a story he'd heard about the lodge: the lodge was previously a mental institution, and in the early 20th century a Palisade-made nerve gas was used to clear it out after the inmates took over. Jill (Claudie Blakley) responds with the story she'd heard: the lodge was a "reeducation center" for Russian war criminals, and after an escape a Palisade-made nerve gas was used to clear escapees out of nearby buildings. Both mention a lone survivor who swore revenge on Palisade. Steve (Danny Dyer) starts to tell his own story about the lodge's past as a clinic staffed by busty nurses when he finds a human tooth in the meat pie the group is eating for dinner. Chastising Gordon (Andy Nyman) for serving a pie he just found in the kitchen, everyone goes to bed.
That night Jill sees someone looking into the lodge from the trees. Though nobody is found outside, everyone but Richard agrees that they should leave the lodge. The next morning Richard grudgingly sends Harris and Jill to the top of the hill to call the bus driver back, on the condition that the rest participate in a team-building game of paintball. Reaching the hill, Harris and Jill find the bus abandoned and the bus driver dead in a nearby creek. Back at the lodge, the game of paintball has just finished when Gordon steps into a bear trap. After several failed attempts by Steve and Billy (Babou Ceesayu) to pry the trap open, Gordon's left leg is cut through completely under the knee. Harris and Jill arrive in the bus, load everyone in and head back for town. On the way, a spike strip is thrown in front of the bus, which causes it to crash. Harris is thrown clear of the bus in the crash, and is decapitated by a masked killer with a machete. Jill is captured and tied to a tree, then gagged, doused with gasoline and burned alive. The rest discover Harris's body, prompting them to head for the lodge to hide for the night.
While Steve and Maggie (Laura Harris) smoke, a masked figure (Levente Törköly) "quietly" grabs Gordon and carries him into the basement. Discovering Gordon's absence and a newly opened door, the four head into the basement which leads to an underground prison. Through one door Billy and Maggie find the now-dead Gordon who has had the Palisade logo carved into his torso and a now-unmasked killer who fires a shotgun at them. The two hide in a nearby cell, where Billy dies from a chest wound. Steve hides on the second floor while Richard escapes out the back into the woods. While the killer searches for Steve, Maggie sneaks up on him with a large knife she took from the prison in the basement, but she falls through the rickety floor. The killer turns round and takes aim at Maggie, but, at the last second, Steve saves her by impaling the killer through the back. The killer falls down and becomes lodged in the main level floor, and Maggie takes his shotgun and shoots the killer in the head.
Maggie and Steve exit the lodge believing they are safe, but discover that a group of several more armed, Russian-speaking killers are awaiting them outside. Maggie shoots one before he can fire on them, and the two run into the woods. They come across Richard, who has stepped on a Palisade-made land mine and cannot move without detonating it. Richard guides Maggie and Steve through the minefield. The killers know that the area is a minefield and do not enter; they use a fallen branch to pass over the minefield close to Richard and torment him with insults and stones as they pass overhead. Accepting his situation Richard does his best to save the others and steps off the mine, blowing up himself along with two of the killers. Steve and Maggie come to another lodge, the real Palisade lodge. Inside they find their boss George, who is partying with two escorts Steve ordered via the Internet earlier. George brings out a prototype missile launcher and fires it at the approaching killers, but the missile locks on to a passing commercial jet instead, destroying it. The five run into the woods, leading to the events shown in the beginning of the film.
Maggie is snared, then about to be molested by a killer, but manages to smash his head with a rock. Steve encounters two attackers and gets beaten and stabbed, but eventually kills them both with a knife and a submachine gun. Maggie is chased by a flamethrower-wielding killer into an abandoned prison camp, filled with crates bearing the Palisade logo. There, Maggie breaks her leg, but is saved when one of the escorts, rescued by Steve, arrives and shoots the man. Steve, Maggie and the escorts make it to a rowboat on the shore of the nearby lake, and as they paddle off to safety Steve jokingly quips, "Foursome?"Laura Harris as Maggie
Claudie Blakley as Jill
Toby Stephens as Harris
Andy Nyman as Gordon
Babou Ceesay as Billy
Tim McInnerny as Richard
Danny Dyer as Steve
David Gilliam as George
Juli Drajkó as Olga
Judit Viktor as Nadia
Sándor Boros as Coach Driver
Severance was released in the United Kingdom on DVD by Pathe! Distribution on 8 January 2007. In the United States it was released on DVD by Magnolia Pictures on 27 September 2007. Severance has also been released on DVD in Australia by Warner Home Video, in France by Pathe! Distribution, in Germany by Splendid Films and in Hong Kong by Deltamac.
Severance received generally favorable reviews. The film holds an approval rating of 64% on the film critic site Rotten Tomatoes based on 89 reviews, with an average rating of 6.1/10. The consensus reads: "A twisted and bloody spoof on office life, Severance nicely balances comedy and nasty horror." On Metacritic, the film holds a score of 62 out of 100 sampled from 23 critics' reviews, indicating "generally favorable reviews".
Peter Travers of Rolling Stone commended Smith's "mischievous blending [of] The Office with Friday the 13th", awarding the film three stars out of four. Peter Bradshaw of The Guardian gave not such a positive review, saying, "It is being billed as Deliverance meets The Office – a tellingly misleading description," giving the film only two out of five stars. In 2012, Total Film ranked it as the 36th best independent horror film of all time.
Mentioned in the film, the CRM-114 land mine is a reference to the CRM-114 radio discriminator in Dr. Strangelove. Severance and Dr. Strangelove both end with the song "We'll Meet Again".
On 28 April 2009, the BBC reported that the murder of a 17-year-old student from Norfolk was allegedly based on a scene from the film. According to the BBC news report, "Norwich Crown Court was told how Simon Everitt, from Great Yarmouth, was tied up and petrol poured down his throat before he was set on fire. Simon's body was found in woodland at Mautby in June 2008." Jurors at the trial of Jonathan Clarke and two other co-defendants were played a scene from Severance and told that, when Mr. Clarke had watched the DVD, "he made a comment to this effect: 'Wouldn't it be wicked if you could actually do that to someone in real life?'" On 29 May 2009, the trio were convicted of Everitt's murder.