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In the 1960s, a 20-year-old girl nicknamed "Babydoll" is institutionalized by her stepfather at t mental hospital after she is blamed for the death of her younger sister (actually defending her against the stepfather who discovered that, at the death of their mother, they would inherit everything). Blue Jones, one of the asylum's orderlies, is bribed by Babydoll's stepfather into forging the signature of the asylum's psychiatrist, Dr. Vera Gorski, to have Babydoll lobotomized, so she can neither inform the authorities of the true circumstances leading to her sister's death, nor reclaim her inheritance. As she enters the institution, she takes note of several items that would be integral if she were to attempt an escape.

In the days prior to her lobotomy, Babydoll retreats to a fantasy world in which she is newly arrived in a brothel owned by Blue, whom she envisions as a mobster. She befriends four other dancers-Amber, Blondie, Rocket and Rocket's older sister, Sweet Pea. Dr. Gorski is envisioned as the girls' dance instructor, and informs Babydoll that her virginity will be sold to a client known as “The High Roller”, who will be arriving in five days. Madam Gorski then encourages Babydoll to perform an erotic dance, during which she fantasizes that she is in feudal Japan, where she meets the Wise Man. After expressing her desire to escape, the Wise Man presents Babydoll with weapons and tells her that if she is to escape, she will need to collect five items: a map, fire, a knife, a key and a fifth, unrevealed item that would require great sacrifice. Before parting ways, the Wise Man instructs Babydoll to defend herself, and she is confronted by three demonic samurai, which she defeats. As her fantasy ends, Babydoll finds herself back in the brothel, her dance impressing Blue and other onlookers.

Inspired by her vision of the Wise Man, Babydoll convinces her friends to prepare an escape from the brothel. She plots to use her dances as a distraction whilst the other girls obtain the tools for their escape. During each of her dances, Babydoll imagines adventurous events that mirror their efforts. These episodes include infiltrating a bunker protected by steam-powered WWI German soldiers to gain the map (mirrored by Sweet Pea entering Blue's office and copying a map of the brothel); storming an orc-infested castle to cut two fire-producing crystals from the throat of a baby dragon (mirrored by Amber stealing a lighter from the breast-pocket of a client); and boarding a train and combating mechanized guards to disarm a bomb (mirrored by Sweet Pea stealing a kitchen knife from the belt of the brothel's cook). During the last of these fantasies, the dance is interrupted, and in the fantasy Rocket sacrifices herself to save Sweet Pea and is killed when the bomb detonates. This is paralleled in the brothel when the cook attempts to stab Sweet Pea as she stole the knife, but Rocket dives in front of the blade and is stabbed herself.

While the girls attempt to procure the knife, Blue, suspecting that the girls are plotting something, overhears Blondie relaying Babydoll's plan to Madam Gorski. After discovering the gruesome scene in the kitchen, Blue has the grieving Sweet Pea locked in a utility closet and confronts the remainder of the girls backstage. He proceeds to make examples of Amber and Blondie, shooting both of them. He then attempts to rape Babydoll, but she stabs him with the kitchen knife and steals his master key from around his neck. She frees Sweet Pea from the closet and the two start a fire with the stolen lighter so that, as a result of the fire alarm, the institution's checkpoint doors unlock. The two manage to escape into the courtyard, where they find the front gate to be blocked by henchmen. Babydoll deduces that the fifth item needed for the escape is in fact herself, and that her sacrifice is needed to complete Sweet Pea's story. She distracts the guards, allowing Sweet Pea to slip out the front gate.

As the henchmen get the better of Babydoll, the scene then cuts back to the asylum in which the surgeon has just performed her lobotomy. As he removes his orbitoclast, he is perturbed by Babydolls expression and starts to question Dr. Gorski as to why she authorized the procedure. Gorski realizes that Blue had forged her signature, and summons the police, who apprehend Blue as he assaults a catatonic Babydoll. Elsewhere, Sweet Pea waits at a bus station where she is stopped by suspicious police. The bus driver, revealed to be the Wise Man from Babydoll's fantasies, misleads the police and allows Sweet Pea to board without a ticket.