Matilda is enrolled at Crunchem Hall Elementary School, where children are terrorized by the principal, Miss Agatha Trunchbull, an ex-Olympic champion. Matilda learns from another girl, Hortensia, and her new friend Lavender, that the Trunchbull's acts of terrorism include throwing a boy out the window for eating two M&M's during class, and locking kids in the chokey, which is known as a Iron Maiden, described by Hortensia, is "a tall narrow hole in the wall behind a door"; the kids are forced to stand in a drippy pipe with jagged edges, and the walls have broken glass and nails sticking out. Matilda asks about parents' actions, but Hortensia claims that despite the clear cuts and injuries from Miss Trunchbull's abuse, her parents refuse to believe any of it. Miss Trunchbull then proceeds to throw a young girl over a fence by her pigtails for no apparent reason, but she lands safely on the other side. To Matilda's relief, her teacher, Miss Jennifer Honey, is quite the opposite; a kind and caring woman with a dark secret that will come to light over time. On her first day, Matilda displays her remarkable intelligence by getting a big product right (13 x 379 = 4,927). Miss Honey is amazed by Matilda's knowledge, but when she suggests to Miss Trunchbull that Matilda should be moved into an older class, Miss Trunchbull refuses. Later, when Miss Honey visits the Wormwoods, she is dismayed by Harry and Zinnia's lack of respect for education.
One day, Miss Trunchbull discovers that the car Matilda's father sold her is a useless hunk of junk, and she takes her anger out on Matilda by locking her in the chokey. When Miss Honey notices Matilda's desk empty, she asks Matilda's friend, Lavender, where she is. Lavender makes a choking gesture, and Miss Honey goes to Miss Trunchbull's office and lets Matilda out. Later, Miss Honey takes Matilda to her place. On the way, they pass Miss Trunchbull's home, and Matilda notices a swing in the front yard. Miss Honey then starts to tell her a story of a young girl who lost her mom when she was two, and her father when she was five. In between the two tragedies, the father invited the mother's stepsister to come live with them. When Miss Honey tells her the girls aunt was a mean person, Matilda realizes Miss Honey is talking about Miss Trunchbull. The girls father died soon afterwards, a suspected suicide. Miss Honey's story did have a happy ending as the girl rented a small cottage and finally escaped from her tyrannical aunt. Matilda recognizes Miss Honey's house as the cottage from her story, and realizes that the girl in Miss Honey's story is Miss Honey herself, and Miss Honey's dark secret is now out: She is Miss Trunchbull's niece.
Inside, Miss Honey explains she was forced to leave all her dearest possessions behind when she left her aunt's home, including a doll her mother gave her. Later, on the way back, they watch Miss Trunchbull loading a shot put, hammer throw, and a javelin into the trunk of her car. They also watch her panic as a black cat advances towards her. Matilda is surprised that Miss Trunchbull is afraid of a cat, but Miss Honey tells Matilda her aunt is very superstitious, so only black ones scare her. While Miss Trunchbull is gone, they sneak into the house. Above the fireplace, where a portrait of Miss Honey's father had once hung was a portrait of Miss Trunchbull holding a javelin. Miss Honey next tells Matilda that her father used to cut a chocolate in half, and he would always give her the bigger half, but after he died, Miss Trunchbull would count them so she could not sneak one. They then head upstairs to Miss Honey's room where they find the portrait of Miss Honey's father and Miss Honey's doll. As Miss Honey goes to take it with her, the Trunchbull's voice rings out; she is threatening Matilda's father with a lawsuit over the phone. She suddenly notices the lid on the chocolate box is not on straight, and she goes on the rampage to find the intruders. Matilda and Miss Honey barely manage to get away from the raging Trunchbull.
Around this time, Matilda learns that she has magical powers, a gift she can use to turn the tables on all the wicked grown-ups in her life - earlier in the movie, she accidentally blew up a television that her father had stolen, and caused a glass of water containing a newt to tip over, and the newt crawled over Miss Trunchbull, and she did both by using her mind. Once she learns to control her powers, Matilda decides to use them to teach Miss Trunchbull a lesson.
On a windy night, Matilda goes to Miss Trunchbull's house where she uses her powers to get Miss Honey's doll, then takes two chocolates from the chocolate box before eating one. Matilda then makes the power cables shake, causing the lights to flicker, and she makes the windows fly open. She then rips Miss Trunchbull's portrait off the wall, and throws it in the fire, replacing it with that of Miss Honey's father before moving the hands of Miss Trunchbull's clock to twelve o'clock. Now convinced her house is haunted, a terrified Miss Trunchbull runs out of the house and to her car.
At school the next day, Matilda gives Miss Honey her doll and the other chocolate. Miss Trunchbull arrives, and tells Miss Honey she will be teaching her class. However, Matilda concocts a plan, and after showing Miss Honey her powers, she says "No more Miss Nice Girl". Coming in, Miss Trunchbull holds up Matilda's red hair ribbon which Matilda lost the night before, then throws it to the floor and spits. Miss Honey tries to defend Matilda, but ends up revealing her secret to the whole class by calling Miss Trunchbull "Aunt Trunchbull". Matilda then puts her plan into action; using her powers to levitate a piece of chalk, she writes a ghostly message supposedly from Miss Honey's father on the blackboard, saying: "Agatha. This is Magnus. Give my little bumblebee her house and her money. Then get out of town. If you don't, I will get you like you got me. That is a promise!" Matilda then makes two erasers attack Miss Trunchbull. Once she recovers, she throws a boy out the window, but Matilda causes him to fly back in, and she sends Miss Trunchbull crashing into a globe which Matilda magically spins around before Miss Trunchbull is sent flying off into the corner. She next charges towards Lavender, but she crashes through the door after Matilda raises Lavender off the floor. The rest of the children in the school grab their lunch boxes, and pelt Miss Trunchbull with the contents, chasing her out of the school. She quickly gets in her car and drives off, and is never heard from again.
The Wormwoods are forced to flee the country and move to Guam when the law catches onto Harry's dodgy dealings, but allow Matilda to stay with Miss Honey - who has now moved back into her father's house - after signing adoption papers that Matilda has drafted, the first decent thing Harry and Zinnia had ever done for their daughter, and Miss Honey is made principal of Crunchem Hall (which later has to add an upper school for its newfound popularity).
At the end of the film, in the credits, it says the film is for Suzie Wilson, Mara Wilson's mother, who died during the filming of Matilda.
The film is modernized and Americanized as a retelling: for instance, it takes place in the United States instead of the United Kingdom, Lavender is African-American (only being described as a "skinny little nymph" in the book), and a boy is thrown out the window for eating M&M's in a literature class instead of Liquorice Allsorts during a Bible study class.
Smaller changes are those of ages, TV programs and the like, and Matilda's brother is turned from a more-or-less ordinary boy to a bullying, fat idiot after his father, while their mother shows some humanity by giving her daughter away because she's better suited for a life with Miss Honey - but "some" only compared to the book, where both parents drop their daughter like a rock. Trunchbull's violence to children is also slightly mitigated. When Miss Trunchbull hurls a pigtailed girl over the fence, the girl lands safely gathering flowers (which she gives to Miss Honey). In the book version, she lands flat on her face and is hurt.
There are also some changes in characters' motivations; for example, in the book, Matilda's pranks against her father is purely done as revenge. In the movie she gets the idea after he tells her that "when a person is bad, that person has to be taught a lesson" and interprets this as justification for "punishing" her parents -- "but only when they deserve it", as the narrator points out. Also, in the book, Matilda's father destroys the library book "The Red Pony" by John Steinbeck out of pure mean-spiritedness, while in the movie the book is "Moby Dick" by Herman Melville, and his reasons for destroying it is that he thinks it's a "filthy" book.
The sub-plot about Mr. Wormwood's shady deals landing him in trouble with the police is hardly mentioned at all in the book (it only comes up at the very end), but in the movie this plot thread is expanded and built upon, with Matilda noticing the two FBI agents spying on them and repeatedly tries to tell her family without any of them believing her. She even comes into direct confrontation with the two agents on one occasion, using her newfound powers to stop them from searching the family garage for stolen car parts, hence buying her father a little more time.
Miss Honey's story about her childhood remains more or less the same, although in the book she says from the get-go that it's about her, while in the movie, she starts out by saying it's about a girl she knew. Also, the nickname her father gave her is altered -- in the book, he just called her "Jenny," while in the movie he called her "my little bumblebee."
At the end of the movie, Miss Honey is made the principal of the school after Miss Trunchbull vanishes; in the book, the job goes to Mr Trilby, the sympathetic "Deputy Head" (who only has a very minor role in the book and doesn't appear at all in the movie).
The most significant divergence, however, is that Matilda's powers are treated more as a conventional superpower and less as a miracle. The film and book both have her start by inadvertent, tiny movements (an exploding cathode ray tube aside), but in the film Matilda eventually goes on to lift and control child-sized objects, and to throw multiple small ones around at will which is unlike the book where it takes much more practice and thought before she can master her powers. The final confrontation with Trunchbull turns into a match of overt physical force versus mental powers, powers she retains to use for trivialities. In contrast, characters in the book never lose their sense of awe and a degree of fear about dealing with forces larger than human. In the book, Matilda's triumph is moving a piece of chalk well enough to write a few dozen words, at the cost of considerable drain to herself, and she loses her abilities afterward. In the film it is suggested that although she doesn't need her powers as much, they will always be with her as she moves a book with her powers. The characters' working theory is that her mental capacity is now being expended in her schooling.