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The film opens in 1585; Roman Catholic Spain is the most powerful country in Europe, with King Philip II on his throne. Seeing Protestant England as a threat as well as in retaliation for England's constant piracy of Spanish ships, Philip intends to make war on his long-time enemy in order to take over the land that is now England and add it to what is already Spain, making his daughter Isabella Queen of England.

Meanwhile, in England, Elizabeth (Cate Blanchett) is still being pressured to marry by her advisor, Francis Walsingham (Geoffrey Rush). She is aging in years (she was actually born in 1533) and, with no child, the throne will pass to her next of kin, her cousin Mary, Queen of Scots (Samantha Morton). The Queen is presented with many portraits of crowned heads of Europe and princes; these include Ivan the Terrible, Erik of Sweden, an Archduke of Austria and a French prince. As always, Elizabeth refuses to take someone's hand in marriage, particularly that of the young Austrian archduke who has become infatuated with the Queen.

Walter Raleigh (Clive Owen) is presented at Elizabeth's court, having returned from the New World, and offers her some of the New World's riches: potatoes, tobacco, and two Indians. Raleigh also offers her gold from Spanish ships that he claims could not carry them, but the Spanish ambassadors who are present protest that Raleigh is a pirate and should not be welcomed. Elizabeth commands that the Indians should be treated well, but refuses to accept the gold.

Elizabeth quickly finds Raleigh attractive. She becomes enamoured of his tales of high-seas adventure and asks Elizabeth Throckmorton (Abbie Cornish), her most favoured lady-in-waiting, to observe him. Bess also finds Raleigh an attractive man and secretly begins an affair with the explorer. Elizabeth meanwhile seeks guidance and advice from John Dee who predicts that two empires will go to war. However, he cannot predict which will triumph over the other, leaving Elizabeth to ponder her fate.

Meanwhile, a Jesuit group in London conspires with Philip to assassinate Elizabeth and replace her on the throne with Mary, Queen of Scots in what is referred to between Philip and the group as "The English Enterprise", and is known to history as the Babington Plot. Mary sends secret correspondence from her prison in England to the Jesuits, who recruit Anthony Babington to assassinate Elizabeth.

Walsingham constantly warns Elizabeth of Spain's rising power and of Catholic plots against her life. However she, unlike her predecessor and sister “Bloody” Mary, does not force her people (half of whom remain loyal to Catholicism) to share her beliefs. Even then, those conspiring against Elizabeth are being hunted and murdered, including Bess's cousin, whom she tries to protect but fails to do so. After learning of her cousin's death, Bess turns to Raleigh for comfort. The barely hidden closeness of Bess and Raleigh causes tension between Elizabeth and Raleigh to mount, testing her desire to keep him in England and increasing his desire to go back to the New World.

Walsingham's brother is a Papist who knows of the plot against Elizabeth. It is revealed, though, that Walsingham had known of the plot all along, intercepting letters, and his brother is jailed. He reveals the plot to Elizabeth, who angrily confronts the Spanish diplomats. The Spanish ambassador feigns ignorance and accuses Elizabeth of receiving Spanish gold from pirates and insinuating a sexual relationship with Raleigh. A sword fight nearly ensues between the queen's male escorts and the Spanish contingent. She throws the Spaniards out of court. Meanwhile, Philip is cutting the forests of Spain to build the Spanish Armada in order to build the invasion fleet.

Mary, Queen of Scots writes a letter condoning the plot. Anthony Babington storms into a cathedral where Elizabeth is praying and points a gun at her. Elizabeth opens her arms, seemingly fearless. He pulls the trigger, and the Queen falls. It is later revealed by the traitor in the torture chamber that there was no bullet in the gun.

Elizabeth learns of Mary's involvement and Walsingham insists she be executed to quell any English Catholic revolt. Elizabeth is reluctant, but nevertheless Mary is tried for high treason. Mary ascends the block in a blood-red dress, red being the Catholic liturgical colour for martyrs. She is beheaded on February 8, 1587. This officially puts the war with Spain in motion. Philip tries to get approval from the Pope to declare war. The Pope and other Catholic leaders regard Mary as the true Queen of England so Philip was given the just cause of avenging the queen's death and overthrowing Elizabeth's court.

In England, Elizabeth forbids Raleigh from returning to the New World instead knighting him and making him Head of the Queen's Guard. Bess discovers she is pregnant with Raleigh's child and after telling him the news, she pleads him to leave. He chooses not to and the couple marry in secret. At the same time, Elizabeth awakes during a dream as the wedding is taking place. She confronts Bess a few weeks later, who confesses that she is indeed pregnant with her husband's child. An enraged Elizabeth confronts her, reminding Bess that she cannot marry without royal consent. Feeling betrayed, the queen banishes Bess from court and has Raleigh imprisoned for seducing a ward of the Queen. At the same time, Walsingham arranges for his brother, William, who is eleven years Francis' junior, to leave for France on the condition that he must never return to England.

The Spanish Armada begins its approach across the English Channel, and Elizabeth sets out on the coast in battle armour to rally the troops for a ground invasion. She forgives Bess and sets Raleigh free. The Spanish ships vastly outnumber England's, but at the last moment a major storm begins to blow the Armada towards the beaches, potentially wrecking their formation. Dropping anchor, the Armada becomes a sitting duck for English fire ships. Raleigh arranges for the English to set their ships on fire and direct their sails to steer into the heart of the fleet while abandoning ship. Elizabeth, back at her coastal headquarters, walks out to the cliffs and watches the Spanish Armada sink in flames. Philip's plan is shattered, and the Spanish naval fleet suffers their most humiliating loss in history.

As the film ends, Elizabeth visits Walsingham on his deathbed, telling her old friend to rest. She then visits Raleigh and Bess and blesses their child, presumably Damerei. Elizabeth seemingly triumphs personally through her ordeal, again resigned to her role as the Virgin Queen and mother to the English people.