In 2007, David Moran (William Atherton), a Wall Street player, witnesses a hit and run by a car. That evening, he reflects on his past in 1958, when he meets two adolescent girls, Meg (Blythe Auffarth) and Susan Loughlin (Madeline Taylor) who, upon losing their parents in a car accident, are sent to live with Ruth Chandler (Blanche Baker), a reclusive woman, and her three sons, Willie, Ralphie, and Donny (Graham Patrick Martin, Austin Williams and Benjamin Ross Kaplan).
As a child, David (Daniel Manche) is the next-door neighbor to the Chandlers. When Meg arrives, he instantly develops a crush on her. Aunt Ruth allows the children of the neighborhood to travel freely in and out of her house, offering them beer and cigarettes. Meg quickly becomes a target to Ruth's misogynistic abuse, making suggestions that she is a whore and starves her. One day, David arrives at the house to find Meg's cousins tickling her. When Ralphie brushes her left breast, she knocks him to the floor, warning him to back off and runs from the room. Ruth beats Susan for Meg's actions, as Meg's cousins hold her back. Ruth then takes the ring that Meg wears around her neck, which belonged to her mother.
A few days later, Meg stops a policeman, Officer Jennings (Kevin Chamberlin) and tells him about what happened. As punishment, Ruth, her children, and their friends bind Meg in the cellar with her hands tied to the rafters. They play a bizarre game of "confession", and when Meg has nothing to confess, she is stripped naked. They blindfold her, gag her and leave her there. That night, the boys sneak back downstairs, giving her water. They agree to loosen her bindings, but only if she lets them touch her. She refuses, but David loosens them anyway, promising to free her into the woods.
A while later, Meg is untied but refuses to eat, claiming that her mouth is too dry from dehydration to swallow it without choking. Ruth again beats Susan for Meg's disobedience. The neighbourhood children are invited to the Chandler household, where they beat, cut and burn her for fun. David tries to tell his parents but is unable to do so. Officer Jennings eventually arrives at the house, having had his suspicions raised after a local boy talked to him. However, he leaves finding nothing. David decides that it is time for Meg to escape, and unties her, promising her he will leave money in the forest for her to run away with.
The next day, David descends into the cellar to find Meg tied to the bed, being raped by Willie. David tries to leave, but Donny stops him. Donny steps forward, wanting to rape Meg as well, but Ruth does not want him to, considering it to be incest to have sex with her so soon after his brother. Ruth instead offers Eddie or David to take a turn with her. When David declines, Ruth heats a needle and carves "I FUCK, FUCK ME" at Ralphie's suggestion, on Meg's stomach, telling her that now she will never be able to be with a man. Ruth then decides that they should make Meg 'perfect' by giving her a clitorectomy, thus "destroying her desire for men forever." At this, David runs for the door, planning to escape and tell somebody. However, the boys chase to stop him, with one holding a knife to his neck, as Ruth orders them to tie David up. Bound on the floor, he can only watch helplessly as Ruth mutilates Meg's vagina with a blowtorch.
The next morning, David awakes still on the cellar floor. He frees himself from his bindings and finds Susan sitting with an unconscious Meg. Susan tells David that Meg did not escape the night that he untied her because she was caught trying to take Susan with her. Although David's plan was to come back for Susan after Meg escaped, Susan had told Meg that Ruth has been touching her on a regular basis to the extent of making her bleed, so Meg didn't want to leave her behind. Susan then tearfully insists that Meg should have just gone without her and saved herself while she could, but David tells Susan everything was going to be all right.
David is afraid that Meg won't survive much longer without help, so he tries to get everyone else's attention by lighting a fire in the cellar. Ruth notices the smoke from the fire and enters the cellar, where David violently beats her to death with Susan's crutch. Willie attacks David and vengefully pulls a knife on him, but Jennings arrives with another policeman, who arrests Willie and Donny (and presumably Ralphie) while Jennings takes Susan from the room and goes for help. David retrieves Meg's mother's ring from Ruth's corpse and gives it to her before she finally dies, her body succumbing to its wounds.
Back in 2007, the adult David reflects on how his past still haunts him to his present day, though as Meg taught him, "It's what you do last that really counts."
The film had a polarizing effect on film critics. On Rotten Tomatoes, it currently holds a 67% "Fresh" rating. In contrast, Metacritic assigns it a 29.
Stephen King said about the film, "The first authentically shocking American film I've seen since Henry: Portrait of a Serial Killer over 20 years ago. If you are easily disturbed, you should not watch this movie. If, on the other hand, you are prepared for a long look into hell, suburban style, The Girl Next Door will not disappoint. This is the dark-side-of-the-moon version of Stand by Me."