In 1799, Ichabod Crane, a New York City police constable criticized for his favoritism of scientific methods, is dispatched to the upstate Dutch hamlet of Sleepy Hollow, which has been plagued by a series of brutal decapitations: a wealthy father and son, Peter and Dirk Van Garrett, and a widow, Emily Winship. Received by the insular town elders—wealthy businessman Baltus Van Tassel, town doctor Thomas Lancaster, the Reverend Steenwyck, notary James Hardenbrook, and magistrate Samuel Philipse—Ichabod learns that locals believe the killer is the undead apparition of a headless Hessian mercenary from the American Revolutionary War who rides a black steed in search of his missing head.

Ichabod, however, is skeptical of the paranormal due to his family past. Boarding at the home of Baltus Van Tassel and his second wife, Lady Van Tassel, he is taken with Baltus' spiritual daughter, Katrina, from his first marriage. When a fourth victim, Jonathan Masbath, a servant in the Van Garrett household, is killed, Ichabod takes the victim's son, Young Masbath, under his wing. Ichabod and Masbath exhume the victims on a tip from Philipse, learning that the widow died pregnant. The horseman decapitates Philipse next. Ichabod, Young Masbath, and Katrina venture into the Western Woods to look for the Horseman's grave. They find a crone witch living in a cave, who reveals that the Horseman's grave is at the "Tree of the Dead." Ichabod digs up the Horseman's grave and discovers the skull has been taken, deducing that it has been stolen by someone who now controls him. The tree is his portal into the living world and the Horseman will continue to take people's heads until his skull is restored to him.

That night, the Horseman kills village midwife Beth Killian and her family, as well as Katrina's suitor Brom Van Brunt when he attempts to intervene; Ichabod is wounded by the Horseman, but survives. Ichabod hypothesizes that the Horseman is attacking targets linked by a conspiracy. Hardenbrook reveals that the first victim, Peter Van Garrett, had secretly married the widow, writing a new will that left his estate to her and her unborn child. Ichabod deduces that all the victims (except Brom) were either beneficiaries or witnesses to this new will, and that the Horseman's master is the person who would have otherwise inherited the estate: Baltus, a Van Garrett relative.

Upon discovering the accusation, Katrina angrily burns the evidence. Hardenbrook commits suicide, and Steenwyck convenes a town meeting at the church to discredit Ichabod, but Baltus bursts in, announcing that the Horseman has killed Lady Van Tassel. The Horseman attacks the church, but is unable to enter. In the chaos, the remaining elders turn on each other. Steenwyck kills Lancaster and is in turn killed by Baltus, who is harpooned and decapitated by the Horseman.