The film tells the story of the origins of Lucian (Michael Sheen), who was the first werewolf able to take human form - to be called Lycans. Viktor (Bill Nighy), the ruthless elder of the vampires, took him home after killing his werewolf mother in a raid. Viktor envisions a race of werewolf slaves for his vampire clan that, conceivably, could keep guard during the daytime hours and toil for the vampires. As Lucian grows up at Viktor's home, his young daughter, Sonja (Rhona Mitra), develops an attraction to the young Lycan, and Lucian becomes fond of Sonja as well.
It is revealed that Viktor has a tacit relationship with the human population of the area, whereupon he agreed to protect them from the wild werewolves that roam the countryside in exchange for a tithe. As a collection of human nobles come to meet with the vampire council for protection from the werewolves in exchange for this aforementioned tithe, Sonja goes out to guard them. Lucian hears the Lycans near Sonja and steals a horse and sword from a nearby Death Dealer. Wild werewolves proceed to attack and kill the nobles, causing Lucian to engage in a battle with them. When Lucian takes off his collar and changes into a Lycan in order to protect himself, the wild werewolves back down to his howl and leave before Lucian is shot down by Viktor's men. Viktor, despite grudgingly acknowledging that Lucian saved his daughter, notes that Lucian still transgressed the laws of the coven by taking off the collar that kept him in check (by preventing him from changing into a Lycan) and feels betrayed by what he thinks of as his favorite pet. Subsequently, he locks Lucian away after having him whipped thirty times with a three pronged chain-bladed whip.
Lucian escapes, kills several of the Vampires and begins to liberate the other Lycans from what he perceives as their unfair imprisonment. The guards are alerted and start to slaughter the Lycans. When Viktor discovers that Sonja has an illegal relationship with Lucian, he imprisons his daughter. Lucian learns about Sonja's imprisonment and sets out to rescue her. On their way out they are attacked by the Death Dealers. Viktor is also involved in the chase and when it comes to the fight, it is Sonja who confronts Viktor. When Sonja discloses to him that she is pregnant with Lucian's child, Viktor overpowers her with a knife to the throat and imprisons both her and Lucian with renewed hatred. Sonja is sentenced to death for her crime against the coven at a trial presided over by her father and the Council. After Sonja's death, which Lucian is forced to witness, Lucian attempts a further escape. Failing, he is able to verbally summon both the wild werewolves and the freed Lycans, who attack the coven and overwhelm it after a fierce battle.
Finally Lucian faces Viktor in a fight and they battle their way to the dungeons. The fight continues back and forth until Lucian knocks Viktor down a well. Lucian tears at chains hanging from above, making a hole in the roof and allowing sunlight in and cornering an enraged Viktor in the darkness. Viktor's 'final' words attest to his regret at not having killed Lucian the moment he was born, to which Lucian sarcastically agrees before forcing his sword through Viktor's mouth and head and letting the body fall into the water below. Lucian declares this victory as only the beginning of what will surely be a war between the races, one bred for slavery and the other born into privilege. In one of the closing scenes we see Tanis leading a very alive Viktor, who survived due to his status as an Elder, into a hibernation chamber on a boat.
The film ends with the opening scene of the first Underworld, with the audio from the scene where Kraven tells Selene that it was Viktor who murdered her family, rather than the Lycans. That Viktor spared her because she reminded him of Sonja, the daughter he condemned to death.
