Jason Shepherd is a 14-year-old chronic liar living in the town of Greenbury, Michigan who is constantly deceiving and misleading his way out of trouble. He tries to get out of writing his 1000 word essay by making up a lie, but he gets caught by his English teacher, Ms. Phyllis Caldwell, who alerts his parents, Harry and Carol Shepherd. He is given three hours to submit his essay, otherwise he will fail English and go to summer school. In a rush to turn it in, he accidentally forgets it in the limousine of Hollywood producer Marty Wolf, who gives him a ride to the community college to turn it in after he is hit by the limousine. Marty initially attempts to give it back to him, but when he sees that it is excellent, it inspires him, and he decides to keep it for himself.
Jason realizes his essay is missing and tries to explain what happened when he met Marty, but neither his parents or Ms. Caldwell believe him, and he is sent to summer school. Later, after a disgusting first day there, he and his best friend, Kaylee, go to see a film, and upon watching the previews, they realize that Marty has plagiarized his essay and is turning it into a film. They fly to Los Angeles to confront him, as Jason is determined to convince his parents that he truly wrote his essay. Upon their arrival, they trick the limo driver and struggling actor Frank Jackson into giving them a ride to Marty's studio, where Jason creates a distraction, with help from Kaylee, that tricks its receptionist, Astrid Barker, into letting him speak with Marty in his office. Jason sneaks into there to convince him to call his father and tell him that he stole the essay, but instead he "accidentally" burns it and removes him and Kaylee from his office. Angered, they plan to inconvenience him until he admits to having stolen it. Frank, having discovered their true identities, joins them in their plan, as he has had a troubled history with Marty. After gathering information about his cruel and abusive treatment of his employees, they sabotage him by going as far as pouring blue dye in his pool and orange food coloring in his shampoo, putting super glue on his headset, sending him to a child's birthday party where he is mistaken for the hired clown and beaten up by the young guests, and modifying the controls to his car. Their tampering with his car causes numerous controls to perform the incorrect function, such as the brake pedal sounding the horn and the radio playing "Blue (Da Ba Dee)" as a way of mocking his blue skin. Struggling to control his car, he stops just behind a monster truck, but is later rear ended by an old lady, whom he had insulted earlier. He accidentally crashes into the monster truck, causing its driver, a wrestler known as "The Masher", to destroy his car in anger.
These pranks cause Marty to miss his appointment with his boss and the president of Universal Pictures, Marcus Duncan. After another film produced by Marty, Whitaker and Fowl, proves to be a critical and commercial failure, Duncan loses confidence in him and threatens to pull production for Big Fat Liar. Jason approaches Marty and agrees to help him in exchange for his confession to having stolen the story. Guided by Jason, he makes a successful presentation which convinces Duncan's wife, Shandra (Chris Ott), to green-light Big Fat Liar, but Duncan warns Marty that any mistakes will cause Universal to pull funding for it and end his career. Marty, however, betrays Jason again and kicks him and Kaylee out from their hiding place in a warehouse of Universal Studios. His assistant, Monty Kirkham, having grown tired of being bossed around and abused by him, decides to help Jason and Kaylee to expose him. They rally all of his employees and devise a plan to stop him once and for all.
The next morning, as Marty (having either removed or concealed the blue skin-dye and orange hair-dye) heads to the studio to begin shooting, many of his employees cause him to be late through multiple mishaps. As Marty finally arrives at the studio, he witnesses Jason kidnapping his stuffed monkey, Mr. Funny Bones. After a chase across the studio, he childishly and prematurely celebrates his supposed victory, mocking Jason and telling him that he will never tell the truth, as well as admitting that he stole Jason's story, thinking that he will still get away with it. However, the altercation is then revealed to be caught on twelve different cameras and is witnessed by many people including his employees, the news media, Jason's parents, and Duncan. Disgusted that Marty would steal a story from a young boy, Duncan immediately fires him due to his acts of plagiarism and dishonesty. Jason thanks Marty for teaching him the importance of telling the truth. After escaping from him and reuniting with his parents, Jason finally re-establishes his trust with them.
Universal later reproduces Big Fat Liar, utilizing the talents and skills of all those whom Marty had abused, and it is released in theaters, with Jason being credited during the closing credits for having written the original story. Meanwhile, Marty, having been stripped of his career, declares bankruptcy and begins his new job as a birthday clown. Unfortunately, he is recognized by The Masher, who orders his son, Darren, the birthday boy, to show Marty his "nutcracker" manoeuvre. Marty screams in horror as Darren charges at him and kicks his crotch, causing him to groan in pain.
Who hit Jason with his limousine?
Marty Wolf