For years, the fictional nation of the Republic of Wadiya has been ruled by Admiral-General Aladeen (Sacha Baron Cohen), a childish, tyrannical, sexist, anti-western, and anti-semitic despot who surrounds himself with female bodyguards, sponsors al-Qaeda (especially giving shelter to Osama Bin Laden after "they killed his double one year ago"), changes many words in the dictionary to "Aladeen", and is working on developing nuclear weapons to attack Israel. He also refused to sell Wadiya's oil fields, a promise he made to his father on his deathbed. After the United Nations Security Council resolves to intervene militarily, Aladeen travels to the UN Headquarters in New York City to address the council.
Shortly after arriving, Aladeen is kidnapped by Clayton (John C. Reilly), a hitman hired by his treacherous uncle Tamir (Ben Kingsley), whom Aladeen's father passed over as successor in favour of his son. Tamir then replaces Aladeen with a dimwitted political decoy named Efawadh (Baron Cohen), whom he intends to manipulate into signing a document nominally democratising Wadiya while opening up the country's oil fields to Chinese and other foreign vested interests. Aladeen escapes after Clayton accidentally kills himself in a botched torture attempt; when his burnt corpse is discovered, Tamir thinks Aladeen has been killed. However, Aladeen is practically unrecognisable as Clayton shaved off his iconic long beard prior to his death.
Wandering through New York City, Aladeen encounters Zoey (Anna Faris), a human rights activist who offers him a job at her socially progressive, alternative lifestyle co-op. Aladeen refuses the offer and encounters "Nuclear" Nadal (Jason Mantzoukas), the former chief of Wadiya's nuclear weapons programme, whom Aladeen thought he had previously executed over an argument about the warhead's shape. Aladeen follows him to New York's "Little Wadiya" district, which is populated by refugees from his own country, and meets him in "Death to Aladeen Restaurant", run by and visited by numerous people whom Aladeen had personally ordered to be executed. Nadal saves Aladeen from nearly being recognised by angry refugees and reveals that rebels infiltrated the secret police, and all the condemned were sent into exile instead of being executed. Nadal agrees to help Aladeen thwart Tamir's plot and regain his position as "rightful" dictator, on condition that Aladeen makes him head of Wadiya's WMD programme again. Aladeen agrees and accepts Zoey's job offer, as she is catering at the hotel where the signing is to occur. Aladeen grows closer to Zoey after she refuses his sexual advances and teaches him how to masturbate, and eventually falls in love with her after seeing her angry. Turning around Zoey's struggling business, Aladeen begins imposing strict schedules on everyone, forming a personality cult around Zoey and intimidating an inspector into giving the store a good review.
However, Aladeen's relationship with Zoey becomes strained after he decides to be honest with her and reveal his true self; she cannot love a man who was so brutal to his own people. After acquiring a new beard taken from a corpse, Aladeen ziplines into the hotel and tells Efawadh he has recovered; (his double being fooled into thinking the Supreme Leader was ill). At the signing ceremony, he tears up Tamir's document in front of the UN delegation, and holds an impassioned speech praising the virtues of dictatorship, drawing unintended parallels to current issues in the United States. However, upon seeing Zoey in the room, he declares his love for her and, knowing Zoey's strongly-held views, vows to democratise his country and open up Wadiya's oil fields for business, but in a way where the general populace will benefit. Angry with Aladeen staying in power, Tamir attempts to assassinate him but Efawadh jumps in front of the bullet and survives, as it is his job "to be shot in the head". Tamir and Efawadh are arrested afterwards.
A year later, Wadiya holds its first democratic elections, although they are rigged in favour of Aladeen (who has now added the titles President–Prime Minister to his previous Admiral-General). Afterwards, he marries Zoey, but is shocked when she crushes a glass and reveals herself to be Jewish; throughout the film he was shown vowing to "destroy Israel". Scenes during the credits show Aladeen's convoy, now consisting of eco-friendly cars, visiting a re-instated Nadal, and later Zoey revealing in a television interview that she is pregnant with the couple's first child. Aladeen responds to the news by asking if Zoey is having "a boy or an abortion".
The unrated cut of The Dictator runs an additional fifteen minutes from the original 83-minute theatrical version. Much of the added material is additional sexual content and dialogue. There is a scene following Aladeen falling asleep in the back of the store where one of his bodyguards, Etra, tries to kill him by beating him with her enlarged breasts. Another added scene is Mr. Ogden, the manager of the Lancaster Hotel, talking to Zoey at The Collective and cancelling the catering contract because of Aladeen.