It's 1951 and Pete Appleton (JIM CARREY) is a Hollywood screenwriter whose script for "Sand Pirates of the Sahara" has just been turned into a movie starring his girlfriend, Sandra Sinclair (AMANDA DETMER). Pete's joy, however, quickly evaporates when he's accused of being a communist due to a club he belonged to years ago while in college.
Before he has a chance to defend himself, Sandra dumps him, his second feature is pulled from production, and he finds himself somewhat drunkenly driving up the coast in reaction to the turn of events. Things get worse when he drives off a bridge, lands in a river and is knocked unconscious.
Pete ends up washing up on the shores just outside the small town of Lawson, California where he's discovered by Stan Keller (JAMES WHITMORE), an elderly resident who takes him to see Doc Stanton (DAVID OGDEN STIERS) who diagnoses the young man as having amnesia.
After various people state that he looks quite familiar, it's Harry Trimble (MARTIN LANDAU), the owner of the now dark Majestic movie theater, who thinks he's identified the mystery man as his long lost son Luke who was listed missing in action during WWII nearly a decade ago.
In his confused condition, Pete can neither confirm nor deny that claim, but most everyone in town accepts that he's Luke. That is, except for Bob Leffert (KARL BURY), a WWII vet who went off to war with Luke and is suspicious of Pete, and Adele Stanton (LAURIE HOLDEN), the doc's aspiring lawyer daughter who was previously romantically involved with Luke.
Nevertheless, Pete's presence as Luke soon buoys the small town's spirits due to them losing so many boys in the war. Accordingly, Harry decides to reopen The Majestic. With Pete's help, as well as that of head usher Emmett Smith (GERRY BLACK) and Irene Terwilliger (SUSAN WILLIS), the candy counter lady, the theater starts showing movies again, much to the delight of Mayor Ernie Cole (JEFFERY DeMUNN) and Sheriff Cecil Coleman (BRENT BRISCOE).
Yet, as everyone tries to get Pete to remember his past, including Adele who starts to have feelings for him again, a menace looms in the distant background. Suspicious of Pete's sudden disappearance, Congressman Doyle (HAL HOLBROOK) and Majority Counsel Elvin Clyde (BOB BALABAN) want him found so that can testify before the House Un-American Activities Committee about his past involvement with communism. From that point on, Pete tries to remember who he really is and what he stands for as the congressional pressure soon threatens the idyllic life in which he's now suddenly found himself living.