A middle school student named Madoka Kaname and her best friend Sayaka Miki encounter a small, cat-like creature named Kyubey. Kyubey offers them a contract: any wish can be granted in exchange for obtaining magical powers and becoming a Puella Magi, a magical girl tasked with fighting surreal, invisible enemies known as witches. Before they can answer, a mysterious transfer student named Homura Akemi intervenes, trying desperately to stop Madoka from making the contract. Madoka and Sayaka then meet Mami Tomoe, a friendly upperclassman who is already a magical girl. Mami takes them on her witch hunts to show them the responsibilities of the role, and Madoka begins to seriously consider using her wish to become a hero like Mami.

The story is set in the futuristic, fictional city of Mitakihara, Japan, a place that initially seems peaceful but hides labyrinths of bizarre and abstract architecture where witches make their lairs. The tone shifts dramatically when, during a battle, Mami is killed by a powerful witch. This traumatic event shatters Madoka and Sayaka's innocent view of being a magical girl, revealing the life is filled with suffering and mortal peril. Another magical girl, the aggressive and battle-hardened Kyoko Sakura, arrives in the city, clashing with Sayaka over territory and ideology.

As the series progresses, the dark truth behind the magical girl system is exposed. Sayaka, wishing to heal the hands of a boy she loves, becomes a magical girl only to fall into despair when her love is unrequited. Madoka learns that a magical girl's soul is extracted to form a Soul Gem, the source of their power, and that when this gem becomes fully tainted by despair, it transforms into a Grief Seed, which then hatches into the very witches they are meant to fight. Kyubey reveals his alien nature, explaining that his race has been harvesting the energy of magical girls transforming into witches for millennia to combat the heat death of the universe. Homura, the girl who tried to stop Madoka, is revealed to be a magical girl from a failed future timeline who has relived the same month countless times in a desperate attempt to save Madoka from a horrific fate.

In the final narrative arc, Sayaka succumbs to despair and transforms into a witch. Madoka and Kyoko attempt to save her, but the plan fails and Kyoko sacrifices herself. Homura is left alone to face Walpurgisnacht, a super-powerful "drama" witch that appears as a spinning upside-down figure, but she is defeated. As Homura nears the point of becoming a witch herself, Madoka finally accepts the contract. She makes a wish that transcends the existing rules of the universe: to erase all witches from existence before they are born, past, present, and future. The wish transforms her into a god-like, omnipresent being known as the "Law of Cycles," who personally saves every magical girl from despair before they can become witches. The world is rewritten so witches never existed. In this new reality, only Homura remembers Madoka, who has ceased to exist as a physical person, and Homura vows to continue fighting in her honor.