In the near future, a revolutionary new psychotherapy treatment called dream therapy has been invented. A device called the "DC Mini" allows the user to view people's dreams, exploring their unconscious thoughts. The head of the team working on this treatment, Dr. Atsuko Chiba, begins using the machine to help psychiatric patients outside the research facility, using her alter-ego "Paprika", a persona she assumes in the dream world. The movie opens with Paprika counseling Detective Toshimi Konakawa, who is victimized by a recurring dream depicting himself in various cinema scenes, ending with a murderer escaping from a homicide.

As the government had not yet approved usage of the device, Chiba's actions are technically illegal and thus are kept a secret between herself and two colleagues: Dr. Kōsaku Tokita, a morbidly obese child-at-heart genius and the inventor of the DC Mini, and Dr. Toratarō Shima, the friendly and cheerful chief of staff. Three of the prototypes for the DC Mini are stolen and the Chairman of the company leads a meeting with the trio to discuss the ramifications and his severe doubts on the ethical nature of the DC Mini. Without warning, Dr. Shima suddenly goes on a nonsensical tirade and throws himself through a window, nearly killing himself.

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