In 1996, Los Angeles has fallen into chaos, with criminal warlords ruling various sections of the city. The most dangerous of these is Simon Phoenix (Wesley Snipes), who has just kidnapped a busload of people that strayed into his territory. The LAPD mounts a raid on his headquarters, with Sergeant John Spartan (Sylvester Stallone) – nicknamed “Demolition Man” for the extensive property damage that occurs when he apprehends criminals – going in first and alone. He captures Phoenix, but the latter sets off explosives to destroy the building; the bodies of the bus passengers are soon found in the rubble. Spartan is also arrested on Phoenix’s accusation that the hostages had been alive before Spartan's actions, and both men are sent to the California State “CryoPrison,” where they are cryogenically frozen in suspended animation to serve out their lengthy sentences (Spartan is sentenced to seventy years; eligible for parole no earlier or later than the year 2046, 50 years from '96. Phoenix is sentenced to life imprisonment).
Thirty-six years later, in 2032, Phoenix is thawed out for a parole hearing, whereupon he kills the warden and escapes. He begins to rampage through what is now “San Angeles” (a combination of Los Angeles, San Diego, and Santa Barbara), hacking into the city’s computer network and overpowering police officers with ease. Since San Angeles is a pacifist utopia, the police are helpless to deal with this sort of behavior. However, Lieutenant Lenina Huxley (Sandra Bullock), an officer fascinated with 20th-century culture, suggests that Spartan be brought in to stop Phoenix.
Spartan is revived and reinstated on the force, but he chafes at the enforced tranquility of this society and many of the people he interacts with, particularly George Earle (Bob Gunton), the commanding Chief of Police/Captain, find his behavior barbaric. He still gains respect from the San Angeles police (particularly Huxley and Zachary Lamb, a fellow officer from 1996) due to his blue collar nature and anti-authoritarian attitude. Phoenix arms himself by breaking into an exhibit of now-anachronistic firearms at a local museum. Spartan tracks him down and fights him here, but Phoenix escapes and briefly encounters Dr. Raymond Cocteau (Nigel Hawthorne), the creator of San Angeles’ society. Cocteau suggests that Phoenix has a job to do: kill Edgar Friendly (Denis Leary), leader of the homeless “Scrap” people who live in the underground “Wasteland,” or the ruins of old Los Angeles.
Spartan and Huxley later witness Friendly leading the Scraps in an above-ground food raid, part of a resistance movement aimed at bringing down Cocteau’s paradise. They also determine that Phoenix was trained in all manner of violent criminal behavior while in CryoPrison, then allowed to escape so he could work for Cocteau. Meanwhile, Phoenix confronts Cocteau again and demands the release of several other criminals to help rebuild his organization.
Entering the Wasteland in search of Phoenix, Spartan, Huxley and sidekick Alfredo Garcia (Benjamin Bratt) meet Friendly face to face. The reason for his defiance of the established social order, he says, is that he is a free-thinking individual who only wants to be left alone to live his life as he chooses. Spartan and Phoenix fight down here, leading to a car chase through the San Angeles streets. At this point, Phoenix reveals that the bus passengers he kidnapped in 1996 were already dead before Spartan arrived, so the latter went to prison for a crime he never committed.
Phoenix eventually gets away, but Spartan and Huxley pursue him into the CryoPrison. Along the way, they find the body of Cocteau, shot dead by one of Phoenix’s men, and learn that Phoenix is thawing out the prison’s worst offenders. Going in alone, Spartan battles him one last time and finally freezes him solid, then kicks his head off to shatter on the floor. Damage from the brawl causes the system to overload, and Spartan barely makes it to the street before the entire CryoPrison explodes. In the aftermath, he suggests that the surface dwellers and Scraps work together to build a better society, then departs with Huxley to explore life in the future.