The Hand begins with comic strip artist Jon Lansdale as he's finishing up a famous work of his called "Mandro", a Prince Valiant/Conan The Barbarian type of character. (In the film the actual "Mandro" artwork was drawn by real life Marvel Comics Conan artist Barry Windsor-Smith.) Lansdale is married to a beautiful woman named Anne (Andrea Marcovicci) and they have a child named Lizzie (played by Mara Hobel, who is best known as the young Christina Crawford in Mommie Dearest).
Anne apparently is bored with their life in Vermont and insists that she and Lizzie move to New York City so that she and Lansdale can "spend time alone." It appears their marriage is on shaky ground. This is brought up during a car ride in which Lansdale is infuriated by her suggestions and they argue. While they are driving, Anne and Lansdale end up behind a slow-moving truck and an impatient driver behind them. In the heat of argument, Anne, who is driving, gets distracted and pulls out from behind the truck. Another truck comes up in the other lane. Anne attempts to get back behind the other truck but the impatient driver has pulled up too far. Lansdale waves his hand to the impatient driver to move back, and when she does not and Anne has to slam on the brakes, his hand is caught behind the truck, which also stops. The hand is severed completely in a bloody, violent scene. Anne attempts to find the severed hand but it is too late.
Lansdale then starts a painful adjustment to not having his right hand, which so happened to be his drawing hand. Anne also adjusts to her guilt of being responsible for the accident and tries to get closer with Lansdale. In a separate instance, he attempts to find the hand himself but does find his signet ring that Anne gave him. They move to New York and Lansdale is approached by his friend and agent Karen Wagner (Rosemary Murphy) to co-produce his comic strip with another cartoonist. But when the test boards are discovered marked up, the deal is off and Karen fires Lansdale. Lansdale, however, is certain HE did not mark them up and questions his daughter about the incident. He also loses the signet ring once again. During his recovery, Lansdale discovers that Anne has started moving away from him like before the accident. He becomes jealous of Anne's yoga instructor and also seems to begin a slow descent into darkness when an encounter with a homeless man (played by writer/director Oliver Stone) leaves the man dead at the "hand" of his former appendage. It's not entirely clear whether or not this was a real event or something in his mind. Lansdale also starts having hallucinations about different objects coming to life as a hand, like a shower faucet.
After his final meeting with Wagner, Lansdale comes forth with his intention to take an offer to teach at a small community college in California. He proceeds to go forward with his plans and meets Brian Ferguson (Bruce McGill), a rough and rowdy country-and-western psychology instructor, who helps indoctrinate him with the college and the small town locale. He discovers soon that perhaps this was a disastrous move on his part after his first couple of weeks teaching. Another thorn in his side is Anne's decision not to move Lizzie and herself out with him.
Although unintentional, Lansdale begins a strange affair with one of his students, Stella Roche (Annie McEnroe), when she decides to show up at his house and strip for him. He starts showing his dark descent with an unshaven face and wild, uncombed hair, akin to Jack Torrance in The Shining. Lansdale becomes obsessed with Stella, buying her lacy lingerie for Christmas and insisting on knowing her whereabouts at all times. Stella, feeling smothered and unknown to Lansdale, makes plans to go away for two weeks with Brian. Brian, who knows nothing of the affair between Stella and Lansdale, drunkenly blurts their plans to Lansdale in the local bar. Soon, the image of Stella being strangled under the Christmas tree by the severed hand, pops into Lansdale's head. The hand apparently cleans up the mess by the time Lansdale, along with Anne and Lizzie, who have arrived to celebrate Christmas, show up at the house. Not long after, Lansdale once again ends up at the bar with Brian. Confused that Brian should be off on his two week vacation with Stella, Lansdale discovers that Brian has not seen Stella since the night she came to Lansdale's house. Brian, even in his drunken state, uncovers the affair between Stella and Lansdale. He is killed by the hand in his car after threatening to call the police on Lansdale about Stella's disappearance. It is now that Lansdale believes he controls the hand and it responds to his impulses and desires. He attempts to murder Anne so that he can have Lizzie to himself. While he makes a strong effort by having the hand kill her while she is driving to the grocery store in a rainstorm, she remains unharmed and returns safely. Later that evening, Lansdale argues with Anne and he leaves her room. Soon, screams are coming from Anne. Lansdale enters her room and discovers the hand strangling her and it attempts to escape by going out the window. Lizzie discovers her father over her mother and assumes he is hurting her. He convinces her otherwise and tells her to call the police. He, then, goes after the hand with a butcher's knife. After a lengthy struggle, he stabs the hand, but the hand gets away and after attempting something with the car, the hand starts to strangle him until he passes out.
Lansdale awakens with his own hand (the one attached) around his throat while the police are skulking around. The sheriff, with Lizzie in tow, and his deputies attempt to ask Lansdale what happened. While he attempts to explain and he discovers that Anne is not dead, the officers notice a pungent smell permeating the area in the carport around the car, specifically from the trunk. Lansdale tries to prove that nothing is wrong by opening the trunk, only to find Stella and Brian's dead bodies inside. Lansdale looks and screams in horror.
The scene fades out and then into a green-painted room of a mental hospital with tons of electronic scanning and testing equipment around. Lansdale is strapped down in a chair with electrodes coming out of his head. An elderly woman (Viveca Lindfors in a Saturn Award-nominated cameo), apparently a doctor or scientist, with a white labcoat on, is circling Lansdale, attempting to make sense of his rage and why he did what he did. She tries to make an effort with him by loosening the restraint on his mechanical hand and shakes it. She continually questions him about what he's feeling. He attempts to tell her that he sees the hand, which she insists is not real and that he did all the killing himself, coming closer to her neck. She laughs it off until the hand actually grabs her and strangles her, smashing her head against the concrete floor. Lansdale, completely taken over by the essence of the hand, looks at her and starts to laugh, loosens the restraint on the other hand and gets up.