The story takes place 1,000 years after the "Seven Days of Fire", an event which destroyed human civilization and most of the Earth's original ecosystem. Scattered human settlements survive, isolated from one another by the Toxic jungle, a forest of giant plants and fungi swarming with giant insects, which seem to come together only to wage war. Everything in the Toxic Jungle including the air is lethally toxic.
Nausicaä is a charismatic young princess of the peaceful Valley of the Wind. Although a skillful fighter, Nausicaä is humane and peace-loving. She has an unusual gift for communicating with the giant insects (particularly with the Ohmu, gigantic, armored, caterpillar- or isopod-like insects who are the most intelligent creatures in the Toxic Jungle.) She is also noted for her empathy toward animals, humans, and other beings. An intelligent girl, and inspired by the Valley's Lord Yupa, a wandering warrior possessed of great wisdom, Nausicaä frequently explores the Toxic Jungle and conducts scientific experiments in an attempt to define the true nature and origins of the toxic world in which she lives. Her explorations are facilitated by her skill at "windriding": flying with an advanced jet assisted glider craft. Yupa is searching for the mythological man in blue who, according to the legend, will appear surrounded by a sea of gold and reunite the people and nature.
One day, an airship crashes onto the cliffs near the Valley of the Wind. Nausicaä tries to rescue a shackled girl of her age from the burning wreck, but the girl dies after revealing that she is Princess Lastelle from the kingdom Pejite and that the cargo of the airship must be destroyed. The airship is from Tolmekia and the cargo turns out to be the embryo of a Giant Warrior, one of the lethal, giant creatures used in the ancient war.
It is later revealed that the Warrior embryo was unearthed by Pejite, but it was stolen by the more powerful state of Tolmekia. While transporting the Warrior - along with Lastelle as a hostage - back to their realm, the Tolmekians were attacked by insects and later crash-landed in the Valley. The next day, the Tolmekians, under the leadership of princess Kushana, invade the Valley to kill the Valley king and to secure and revive the Warrior. Kushana explains that the Giant Warrior will be used to burn the Toxic Jungle even though Obaba, a blind elder Valley woman, warns that attempting that will only anger the Ohmu and lead to more deaths and turn the valley into part of the jungle.
Kushana attempts to return to Tolmekia, with Nausicaä and several others as hostages. Before their departure, Nausicaä reveals to Yupa a hidden garden of jungle plants which are not toxic because they are growing in sand and water from a deep, untainted well. Nausicaä explains that the jungle is only toxic due to the toxic soil that covers the surface of the earth, even in the Valley; she has been trying to find the cause and a possible cure for her people, including her now-dead father. Since she has to depart, however, she has shut down the water flows which keep the plants alive.
The airships are attacked by a Pejitan gunship and several of the ships are destroyed. Nausicaä and another hostage, on board of one of the burning cargo ships still mid-air, make their way to a gunship that the Tolmekians took, but before they can leave, Kushana joins them. They are forced to make an emergency landing in the jungle. There, Nausicaä communicates with several Ohmus and discovers that the pilot of the Pejitan gunship is still alive. With the help of her glider, Nausicaä rescues the pilot from a swarm of enraged insects. However Nausicaä, the Pejitan pilot and the glider are swallowed by quicksand and end up in a strange, non-toxic world that is below the jungle. Nausicaä realizes the plants in the jungle purify the polluted topsoil, producing clean water and sand which remains hidden in the underground world. The pilot reveals that he is Asbel of Pejite, the twin brother of princess Lastelle.
Meanwhile, the people of the Valley of the Wind request weapons from the occupying Tolmekians to destroy toxic spores, which have infested the valley's forest. Enraged that they have had to burn their forest because of the Tolmekians, the citizens revolt, attacking the Tolmekians who have taken over the castle. The Tolmekians counter, forcing the valley residents to flee to an ancient ship on the shore of the acid lake, with the Tolmekians in pursuit.
Nausicaä and Asbel return to Pejite, which is devastated after the Pejite people lured the insects from the Sea of Decay into their own town in order to kill the occupying Tolmekian forces. The Pejite people, now seemingly surviving only on board of a single airship, reveal that they will do the same thing to the Valley of the Wind to recapture the Warrior, and use it to burn the jungle. To prevent Nausicaä from alerting the Tolmekians, they capture her, but she escapes with the help of Asbel and his mother. With her glider, she heads to the Valley, but along the way she encounters an enormous herd of enraged Ohmus who are following an injured baby Ohmu being used by the Pejite people to lure the Ohmus to the Valley. Nausicaä releases the baby Ohmu and gains its trust.
Meanwhile, the Tolmekians attempt to stop the herd with their armored vehicles but fail. Kushana, who had escaped from the hostages, arrives with the Giant Warrior to stop the Ohmu herd. The Warrior fires several beams from its mouth which on impact cause massive explosions, but this only serves to enrage the insects more. The Warrior attempts to continue fighting the Ohmu, but because it was awakened before being fully grown it collapses and dies. However, Nausicaä and the baby Ohmu are finally able to stop the Ohmu herd, but she is mortally wounded in the process. In front of the Valley people and the Tolmekian forces, the Ohmus use their gold-colored tentacles to heal Nausicaä's injuries. Nausicaä's dress is then seen by all her village as now being of blue color, stained by the blood of the baby Ohmu she rescued; thus Nausicaä turns out to be the mythological figure in blue mentioned in the beginning. The film ends with scenes of the future, where people and insects live in peace with each other. After the credits, a scene from under the Toxic Jungle shows a new, non-toxic plant growing, showing a possible new forest.
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