Jedi Knight Qui-Gon Jinn and his apprentice, Obi-Wan Kenobi are dispatched to the planet Naboo to settle a dispute between the Trade Federation and Queen Amadala (Padme). The Federation has blockaded Naboo to force them into signing an unfavorable trade agreement. Unknown to the galactic senate, the Federation has formed an alliance with Darth Sidious, a Sith Lord. The Siths are former Jedis who succumbed to the Force's dark side, although their order is thought to be long extinct.
Before negotiations begin, the viceroy attempts to assassinate Qui-Gon and Obi-Wan, but the two Jedi escape to the planet surface. They have discovered a droid invasion army hidden aboard the Federation ship. With the help of Jar Jar Binks, an outcast gungan (aquatic-living creatures), they make their way to Queen Amadala's palace in Theed. To avoid signing the treaty, Amidala escapes with Qui-Gon, Obi-Wan and Jar Jar Binks and heads to Coruscant, the galactic seat of government. Amidala intends to present her case to the galactic senate. En route, they divert to the desert planet Tatooine for repairs to their damaged ship. At a salvage shop, Qui-Gon, Padme (Amadala), and Jar Jar meet Anakin Skywalker, a young slave boy. Watto, Anakin's master, refuses to sell the part Qui-Gon needs for Republic credits, and Qui-Gon must somehow raise money. As a sudden desert storm approaches, Anakin offers the group refuge at his home. Qui-Gon discovers Anakin possesses undeveloped Jedi abilities and believes he may be the Chosen One destined to return balance to the Force. He's further convinced when Anakin's mother, Shmi, says Anakin was conceived without a biological father.
To help Qui-Gon get the part for the spaceship, Anakin offers to enter his own racer in a dangerous pod race. Qui-Gon bets Watto the Queen's space ship and the entire winner's purse against the part for the ship and Anakin's freedom. Greedy Watto accepts the bet certain that Anakin will lose. Anakin wins and Watto reluctantly frees him. Wanting a better life for her son, Shmi allows Anakin to leave with Qui-Gon to become a Jedi.
Qui-Gon and Obi-Wan are unaware they've been tracked to Tatooine by Darth Maul, a Sith Lord and Darth Sidious' apprentice. Maul attacks the group as they're about to take off, but they escape. On Coruscant, Qui-Gon reports the reemergence of the Siths to a skeptical Jedi Council. The council denies Qui-Gon's request to train Anakin as a Jedi, claiming he's too old, but Master Yoda has sensed something dangerous in him. Defiant, Qui-Gon says Anakin will be his padawan (apprentice) with or without the council's approval.
Queen Amadala presents her case to the senate. Senator Palpatine persuades her that Supreme Chancellor Valorian is a weak and ineffective leader. In fact, Valorian is attempting to aid Amidala but is stymied by a bureaucratic and increasingly corrupt senate. Urged by Palpatine, Amadala calls for a vote of no confidence against Valorian, and he is removed from office. Palpatine is nominated to replace him. Frustrated by the Senate's inaction, Amidala returns to Naboo accompanied by Qui-Gon, Obi-Wan, Anakin, and Jar Jar.