As Perseus and his family fish from a boat, they watch soldiers from the city of Argos destroy a statue of Zeus. The gods, infuriated at this desecration, unleash the Furies, who attack the soldiers and destroy the fishing vessel. Only Perseus survives, and he is found by a group of the soldiers.
Perseus is brought before King Cepheus and Queen Cassiopeia, who are celebrating their campaign against the gods. Queen Cassiopeia brashly compares her daughter Andromeda to the gods and boasts that she is more beautiful than Aphrodite. The revelry is cut short by the arrival of Hades, who has been given leave by Zeus to punish the mortals for their defiance. Hades threatens to unleash his monster, the Kraken, against Argos, unless Andromeda is offered as a sacrifice. Before leaving, he reveals that Perseus is a demigod, a son of Zeus.
Perseus meets Io, who confirms his origin. Io also reveals that she has watched over Perseus his entire life. She has always protected him, for he is the only one who can defeat the gods.
Perseus leads the King's Guard to the Stygian Witches, looking for a way to kill the Kraken. After being betrayed by the power-hungry Hades, Zeus gives Perseus a sword forged on Mount Olympus and a winged horse named Pegasus. Perseus refuses both, but Draco, captain of the King's guard, puts the sword into safekeeping. Soon after, they are attacked by Calibos, an agent of Hades. Draco severs the beast's hand, and Calibos flees. The band give chase but are attacked by giant scorpions that spring from spilled drops of Calibos's blood. They are saved by a band of Djinn, non-human desert sorcerers led by Sheik Suleiman. The Djinn also wish for the gods' defeat, and lend their aid to Perseus and his band.
The group arrives at the lair of the Stygian Witches and learn that to kill the Kraken they must obtain and use the head of Medusa, a gorgon who resides in a temple in the Underworld. Any living creature that looks on Medusa's eyes turns into stone.
Perseus, Io, Suleiman, Draco, and his remaining men, Solon, Eusebios, and Ixas, cross into the Underworld. The men enter Medusa's temple lair while Io remains outside. Medusa kills all three of Draco's men. Suleiman and Draco both wound the gorgon, sacrificing themselves in the process. Perseus finally beheads her by using his reflective shield to see her with his back turned. As he leaves the temple with Medusa's head, Calibos appears behind Io and fatally stabs her. Perseus and Calibos fight, and, finally accepting that he is a son of Zeus, Perseus picks up the Olympian sword and stabs Calibos through the chest.
Before dying, Io urges a reluctant Perseus to leave her and save Andromeda and Argos. Then she dissolves into a golden ethereal vapor. Pegasus appears, and Perseus mounts the flying horse and hastens back to Argos, as the Kraken is released. The people of Argos seize and bind Andromeda to offer her to the Kraken. Meanwhile, as people die in the Kraken's wake, the balance of power on Olympus shifts: Hades reveals he does not require the faith or worship of mortals (as Zeus does), but simply their fear. Hades then effortlessly subdues the weakened Zeus.
Riding Pegasus, Perseus arrives at Argos and exposes Medusa's head to the Kraken, which makes eye contact just before it is able to reach Andromeda. The Kraken slowly petrifies and collapses. An enraged Hades appears, intending to finally kill Perseus. Perseus, calling upon Zeus, throws his sword at Hades. A lightning bolt engulfs the sword, and the blast banishes Hades back to the Underworld.
Perseus rescues Andromeda, who is now the rightful Queen of Argos. Andromeda asks Perseus to stay by her side as King, but he declines. Perseus also refuses another offer of godhood from Zeus, who then proclaims that if Perseus is to live as a human he should not be alone and revives Io.