Cigarettes. Top quality!

Nick Naylor (Aaron Eckhart) is the Vice President and the chief spokesman for the Academy of Tobacco Studies), a tobacco lobby whose stated purpose is to research the links between smoking cigarettes and lung cancer. Unsurprisingly, the group, funded by cigarette companies, does not find any link between the two. Nick's job requires him to inform the public of these results, as well as defend the rights of smokers. The film follows his career as a talking head for Big Tobacco, appearing in both public speaking engagements and on television programs. Each week, Nick meets with Polly Bailey (Maria Bello) and Bobby Jay Bliss (David Koechner), lobbyists for the alcohol and firearms industries respectively, for lunch and mutual support. The three jokingly refer to themselves as "the M.O.D. Squad" (alluding to both the phrase "Merchants Of Death" and the television show The Mod Squad.

Faced with a bill to add a skull and crossbones to all cigarette packaging, Nick proposes an idea to his boss, BR (J.K. Simmons) to get actors in films to start smoking on screen again as in the 1920s and 1930s, and thus "put the sex back in cigarettes". BR sends him to Hollywood to meet with superagent Jeff Megall (Rob Lowe) and arrange product placement. Nick decides to bring his son, Joey (Cameron Bright), on the grounds that they do not spend enough time together since Joey's mother gained custody. As Joey asks about the details of Nick's job during the trip, they bond as Nick teaches him the art of spin.

Nick also plans to appear before the U.S. Senate to fight the packaging bill, as well as Senator Finisterre, (D-Vermont) (William H. Macy), the primary supporter of the bill and a long time critic of cigarettes. During an appearance on Dennis Miller's talk show to debate the issue with Finisterre, a caller threatens to kill Nick. After refusing BR's suggestion for him to hire bodyguards, Nick is soon kidnapped, and transdermal nicotine patches are placed all over his skin, sending high doses of nicotine into his blood stream, triggering a toxic response (nicotine poisoning) and nearly killing him. Luckily, he is found alive, and in a twist of irony, it was his smoking habit and resulting tolerance of nicotine which saved his life; however, he can never smoke again because of resultant hypersensitivity to the drug.

In the midst of all of this, Nick has secretly begun an affair with an attractive reporter named Heather Holloway (Katie Holmes), revealing many secrets to her during their love making, assuming it was off-the-record. She was preparing a piece about him, promising to be fair to both sides of the issue. She then publishes an article that paints Nick as a heartless monster, including Nick's dealings with the M.O.D. Squad, Marlboro Man Lorne Lutch (Sam Elliott), supposed training of Joey to follow in his footsteps, and the behind-the-scenes plan to increase cigarettes in film. When Nick confronts Heather over the phone, she condescendingly states that she's like him by just working a job to pay the mortgage. Deciding that the article has either removed or completely reversed any sympathy of the public towards Nick after his kidnapping, BR decides that the Academy should distance itself from Nick and fires him. After Nick initially becomes depressed, Joey reminds him of why he does his job: to defend "defenseless" corporations such as sweatshop foremen and land mine makers.

Speaking to the press, Nick promises to clear the names of those linked to him by the article, and revealing Holloway as an unscrupulous reporter who used sex as an aid in manipulating Naylor into giving away unpleasant industry secrets. He also reveals that he still intends to testify before the Senate in hopes of stopping the bill from passing. His message to the Senate was that it is not the government's job to warn the public of hazards. The essential problem is one of education, and it is the role of parents to educate their children so that they can grow to make informed choices. Otherwise, he tells the Senator from Washington, the government should put warning labels on Boeing airplanes about the risk of flying. He tells the Senator from Michigan that Fords should come with warning labels about the risk of driving cars. Then he tells Senator Finisterre that the government should mandate a warning label for Vermont cheese about the risk of heart disease. Nick then returns to his point that all of life has risk, and that the risk can be properly managed through parental education. Nick ends up performing so well at the Senate hearing that BR asks him to return to the Academy. As a reporter asks Nick if he will continue to work with the Academy, however, he fully realizes BR's motives for firing and rehiring him and decides not to return as an example to his son, completely catching BR off guard before the press. The film ends with a review of the lives of those affected by the entire situation: the tobacco industry pays many millions of dollars to the victims of the cigarrettes' effects, BR is out of work for the first time in years after the Academy is dismantled, Heather is reduced to working as a weather reporter for a small TV station, Senator Finisterre is still working on his anti-cigarette campaign by digitally removing cigarettes from classic films, and the M.O.D. Squad is still meeting weekly — with new lobbyists from the oil, fast food and hazardous waste industries being invited to the luncheon. Joey wins a school debate, and Nick begins a public relations training firm.