In 1891 London, Sherlock Holmes (Robert Downey, Jr.) and Dr. John Watson (Jude Law) race to prevent the ritual murder of a girl by Lord Blackwood (Mark Strong). They arrive just in time to stop Blackwood, with Holmes saving Watson from a hidden glass weapon. Inspector Lestrade (Eddie Marsan) and the police arrive to arrest Blackwood.
Three months later, Holmes is without a new case and has become bored (thus causing him to accept an invitation to a boxing match). Watson prepares to leave 221B Baker Street to establish his own business, and intends to marry Mary Morstan (Kelly Reilly). It is the day of Blackwood's execution and he requests Holmes' presence. He warns Holmes that three more deaths will occur after his execution that will change the very nature of their world. Blackwood is executed by hanging, and declared dead by Dr. Watson himself.
Irene Adler (Rachel McAdams) then appears on the scene — a woman master criminal who has twice outsmarted Holmes in the past, and who as the result the only one he had ever cared for. She asks Holmes to pursue a case of a missing red-haired midget by the name of Reordan[4], at the same time also letting Holmes know she has divorced her latest husband and inviting him to resume their old love affair. After her departure, Holmes disguises himself and follows, in order to discover the identity of her employer. The man is concealed by shadow and Holmes can only surmise that he is a professor from traces of chalk on his jacket.
Three days after Blackwood's execution, his tomb is found shattered from the inside out, and an eyewitness reports seeing Blackwood walking away. Holmes, Watson, and police Inspector Lestrade find Blackwood's coffin contains the body of the red-haired midget. Holmes takes a pocket watch from the corpse, identifies it as having come from a London pawn shop, and obtains an address for its owner from the business. At the midget's home, they discover several chemistry experiments. They fight three thugs, arsonists sent to destroy the evidence including the giant-like, French-speaking Dredger (Robert Maillet). Holmes chases and fights Dredger in a nearby shipyard, but during the fight a ship gets loose and nearly kills Holmes, sinking into the River Thames. Dredger escapes, Holmes and Watson are then arrested for property damage.
Watson is soon released on bail by Miss Morstan. Holmes is left in jail, until he is later taken to the Temple of the Four Orders, an occult-dabbling secret society. The leaders, Sir Thomas (James Fox) and Lord Coward (Hans Matheson), reveal Blackwood was a former member and plead for Holmes to help stop him. Holmes declines their generous offers of reward but continues to pursue the case on his own terms. Holmes deduces that Blackwood is the son of Sir Thomas, a secret which Sir Thomas confirms.
Two senior members of the order, Sir Thomas and Ambassador Standish, are killed by Blackwood, through apparently magical means, allowing Blackwood to assume control of the order. He plans to use the Order's power to push for Britain to retake the United States, weakened by civil war. Lord Coward has been in league with Blackwood all along, Blackwood orders him to issue a warrant for Holmes' arrest.
Holmes and Watson follow clues to an industrial slaughterhouse, where they are taunted by Blackwood and forced to rescue Adler from a deadly conveyor belt trap. Watson chases after Blackwood but is caught by a tripwire, setting off an explosion; Watson warns them but is badly injured himself. Holmes learns he is wanted by the police and goes into hiding. He realizes that Blackwood is conducting a ritual based on the sphinx, with the three murdered men tied to three of the mythical creature's animal constituents: man, ox, and eagle. Holmes deduces the fourth symbol the lion, represents the British Parliament. Holmes allows Lestrade to capture and bring him to the Home Secretary. Overconfident, Lord Coward reveals Blackwood's plan for to wipe out House of Lords. Holmes escapes, diving out the window into the river Thames, and is rescued by Watson and Adler in a boat.
The three enter the sewers beneath Parliament and discover a complex machine, based on the midget's experiments, with a radio-controller trigger to release a cyanide derivative into the Parliament chambers. They fight off Blackwood's men, and dislodge the cyanide cylinders from the machine. Adler grabs the cylinders and races away, followed by Holmes.
The film's climax takes place on the unfinished Tower Bridge.
Blackwood and Coward realize their plan has failed and attempt to escape. Blackwood manages to get away but Coward is unable to leave. Holmes confronts Adler on top of Tower Bridge, still under construction, she has nowhere to run. Blackwood arrives, knocking Adler to a lower platform, where she lies unconscious. Holmes tricks Blackwood into becoming entangled in the ropes and chains, and Blackwood is left hanging precariously over the Thames while Holmes recounts that all of Blackwood's "mystical" acts were simply applications of science and trickery. Holmes intends for Blackwood to stand trial and be appropriately executed but a loose beam falls off the rafter supports, causing Blackwood to plummet off the bridge and be hanged by the chains.
Holmes helps Adler recover, though he handcuffs her. She explains that her employer is "Professor Moriarty", warning Holmes that Moriarty "is just as brilliant as he is, and infinitely more devious". Holmes replies, "We'll see about that." Holmes drops the key to the cuffs in Adler's shirt and leaves her, returning to Watson. The police arrive to report a dead officer found near Blackwood's device, and Holmes deduces that chasing Adler and fighting Blackwood was a diversion by Moriarty, who used the distraction to take a key component of Blackwood's remote control device from the machine. Holmes accepts the case.
