...what ya gonna do?

The film takes place in a 1950s-esque alternate universe where radiation from space has turned the dead into zombies. This resulted in the "Zombie Wars", where humanity battled zombies to prevent a zombie apocalypse, with humanity the ultimate victor. The radiation still plagues humanity, as all those who die after the original contamination turn into the undead, unless the dead body is disposed of by decapitation or cremation. In order to continue living normal lives, communities are fenced with the help of a governing corporation named Zomcon. Zomcon provides collars with accompanying remote controls to control the zombies' hunger for flesh so as to use them as slaves or servants.

In the town of Willard, whose name is a reference to the town in the original 1968 Night of the Living Dead, housewife Helen Robinson (Carrie-Anne Moss) buys a zombie in spite of her husband Bill's (Dylan Baker) zombie phobia, as Bill has had bad experiences with zombies having been a veteran of the Zombie Wars. Their son, Timmy (K'Sun Ray), befriends the zombie, naming him "Fido" (his true name is never revealed, and little is revealed of his "pre-zombie" life, except that he died of myocardial infarction, and at one point Helen wishes she had met him before she got married and when he was still alive). One day, Fido's collar malfunctions and he kills their next door neighbor, who turns into a zombie. Timmy "kills" the zombified neighbor later, but not before she kills and infects another person, causing a small outbreak. Zomcom security forces quell the situation and then investigate what caused the outbreak.

When a pair of local bullies are blamed for the missing neighbor, they capture Fido and Timmy. Fido escapes and runs to find Helen, who comes and rescues Timmy from the bullies (who, through misadventure and Fido's hunger for human flesh, are now zombies), and they try to forget about the whole thing. Several days later, the neighbor's body is found and the murder is traced back to Fido, who is taken away to Zomcon where the public is told he will be destroyed. Timmy learns through Cindy Bottoms (Alexia Fast), daughter of Jonathan Bottoms (Henry Czerny), Zomcon's abusive security chief, that Fido is simply working in a factory at Zomcon. Timmy sets out to rescue him with the help of Mr. Theopolis (Tim Blake Nelson), previous security chief of Zomcon who was forced into early retirement when it was discovered he was found guilty of fraternization with his female zombie, whom he has remarkably preserved well to retard her decaying process, thus giving her a relatively attractive appearance.

Meanwhile, Timmy locates Fido, but is captured by Mr. Bottoms, who attempts to throw Timmy into the zombie-infested "wild zone" that exists outside of the fenced communities. Bill comes to the rescue and is killed by Mr. Bottoms, who in turn is killed by Fido. Timmy is set free and the news media propagandizes that the Zomcom security breach was the fault of rednecks who venture out into the wild zone to hunt zombies for fun. Helen finally learns not to belittle Bill's bad experiences from the Zombie Wars by paying for a headless funeral in order to prevent his zombification. The film ends with Fido as a surrogate father and husband, Timmy, Helen and Helen's newborn baby by Bill as a new family. They, along with a few neighbors happily enjoy their new domestic lives together, including the zombified Jonathan Bottoms who is now more attentive to his daughter.