Jason Shepherd (Frankie Muniz) is a 14-year old pathological liar and con artist living in the fictional town of Greenbury, Michigan. When his English teacher, Ms. Phyllis Caldwell (Sandra Oh), assigns Jason and the rest of his class a creative writing assignment, Jason does not complete it. His parents, Harry and Carol (Michael Bryan French and Christine Tucci), are later called into school, where Ms. Caldwell tells Jason that if Jason cannot bring her a handwritten story, Ms. Caldwell will not consider it a valid contribution and he will flunk the class and have to take summer school. Jason writes a story entitled Big Fat Liar, inspired by how he lies throughout his life. Now finished, Jason rides his sister's bicycle and collides with the limousine of an arrogant Hollywood producer Marty Wolf (Paul Giamatti); Jason then blackmails Wolf into giving him a ride to school. During his ride, Wolf reveals to Jason that he is also a liar and con man, but a more professional one than Jason. When the limousine reaches the school, Jason hastens out of the limo, not realizing that he has left his story behind. Wolf initially attempts to give it back to Jason, but when he sees that it is excellent, he decides to keep it for himself.
Upon entering school, Jason realizes that he does not have the story. Neither his parents nor Ms. Caldwell believes him when Jason claims to have written it, and he is therefore ordered to undergo summer school. Later, Jason and his best friend, Kaylee (Amanda Bynes) finds out that Wolf has plagiarized his composition by making the fictional film Big Fat Liar. Jason and Kaylee use their savings to fly to Los Angeles to confront Wolf. Upon their arrival in Los Angeles, Jason and Kaylee trick limo driver Frank Jackson (Donald Faison) into giving them a ride to Wolf's studio, where Jason tricks receptionist Astrid Barker (Rebecca Corry) into leaving her post to allow him to speak with Wolf about his situation. Wolf agrees to return the story, but intentionally burns it and has Jason and Kaylee removed from his office.
Angered, Jason and Kaylee plan to inconvenience Wolf until he admits to having stolen Big Fat Liar. Frank discovers their true identities and is at first irritated, but then, after discovering their true intentions, becomes sympathetic toward Jason and Kaylee's plight. Frank takes Jason and Kaylee to Wolf's house, where Jason and Kaylee add blue and orange dye to Wolf's swimming pool and shampoo, which gives him blue skin and orange hair. Impersonating the Universal Studios president's secretary, Kaylee sends Wolf to the birthday party of a child named Aaron (Jake Miner) to get vengeance for veteran stunt coordinator Vince (Lee Majors), an elderly employee of his whom he criticized and who had wanted to take his granddaughter to the same party. There, Wolf is mistaken for a clown and a group of children end up attacking him. Meanwhile, Jason and Kaylee modify the controls to Wolf's blue Jaguar XKR convertible, which cause various controls to perform an incorrect function. Struggling to control his convertible, Wolf stops just behind a monster truck, but is later rear ended by a vengeful old lady, whom he had insulted earlier, which causes him to crash into it, therefore causing its driver, the Masher (Brian Turk), to destroy Wolf's convertible in anger.
As a result of these pranks, Wolf misses his appointment with his boss and president of Universal Studios, Marcus Duncan (Russell Hornsby). Wolf and Duncan meet together at a party to celebrate the premiere of another fictional film Whittaker and Fowl, which turns out to be another box office bomb. Duncan distrusts Wolf to create anything better as Whittaker and Fowl has cost the studio three million dollars and tells him that production for Big Fat Liar will be withdrawn unless Wolf can convince him otherwise. Jason agrees to help Wolf in exchange for a confession of the truth to his father. Guided by Jason, Wolf makes a successful presentation which convinces Chris Ott (Shandra Duncan) to green-light Big Fat Liar and warning him should any little mishap occur, funding for the film will be withdrawn and his career will be over. However, Wolf betrays Jason again and he calls his security guards to remove Jason and Kaylee from his office for the second time, but this time, both their schemes and hiding place location have been uncovered and revealed as well. Rocko, the head of security, informs Jason and Kaylee that they will be forced out from Hollywood and sent back to their hometown in disgrace, while the incidents they caused will be covered up.
Jason is preparing to give up on exposing Wolf's plagiarism. Wolf's assistant, Monty Kirkham (Amanda Detmer), tells Jason and Kaylee that she has had it with Wolf's abuse and wants to help them to expose Wolf. Jason, Kaylee, and the crew members rally together with all of Wolf's employees and brief them on their plan to stop him once and for all. As Wolf heads to the studio to begin shooting his film, his employees cause him to be late through multiple mishaps. When Wolf finally arrives on the lot, he sees Jason kidnap his stuffed monkey, Mr. Funny-Bones. Unable to stand losing Mr. Funny-Bones, Wolf gives chase to Jason and eventually corners him on a roof. After Wolf finally recovers Mr. Funny-Bones, he tells Jason that he has won and will never tell him the truth that he stole his story. It is later revealed that Wolf's confession is recorded by twelve different cameras and in front of a whole crowd of people at the bottom of the building. Disgusted with his dishonesty, Duncan immediately fires Wolf. Jason thanks Wolf for teaching him the importance of telling the truth, which enrages Wolf into attacking Jason. Jason eventually escapes by jumping off the building and onto an industrial-size stunt mat. Afterwards, Jason finally re-establishs his trust with his parents.
In the epilogue, Big Fat Liar is later reproduced and shown in movie theatres across the United States by utilizing the talents and skills of all those whom Wolf had abused. During the film's closing credits, Jason is credited of writing his original story and Ms. Caldwell is impressed and very proud of him. Meanwhile, Wolf declares bankruptcy and begins his new job as a clown, where he is assigned to entertain the son of the Masher, whom he had insulted earlier. Recognizing Wolf, the Masher orders his son: "Yo, Little Mash, show him your nutcracker!", a newly learned prizefighting technique as a means of avenging the earlier offense. The Masher's son delivers a flying kick to Wolf's groin, making his eyes dilate and rotate in utter pain.
- Frankie Muniz as Jason Shepherd, the main protagonist. He is a pathological liar. Despite poor performance in school, Jason is very smart and good with technology.
- Amanda Bynes as Kaylee, the deuteragonist. She is Jason's love interest.
- Donald Faison as Frank Jackson, the tritagonist. He is a limo driver and a struggling actor.
- Russell Hornsby as Marcus Duncan, the secondary tritagonist. He is Marty's boss and the founder and chairman of Universal Studios.
- Paul Giamatti as Marty Wolf, the main antagonist. He is an arrogant Hollywood producer and a compulsive liar. Unlike Jason, Marty doesn't care how his lying affects others.
- Amanda Detmer as Monty Kirkham, Wolf's assistant.
- Michael Bryan French and Christine Tucci as Harry and Carol Shepherd, Jason's parents.
- Sandra Oh as Ms. Phyllis Caldwell, Jason's English teacher.
- Alex Breckenridge as Janie Shepherd, Jason's older sister.
- Rebecca Corry as Astrid Barker, the dog-loving receptionist at the Wolf Pictures office.
- Jaleel White as Himself
- Lee Majors as Vince, an aging, but nevertheless qualified, stuntman.
- Sean O'Bryan as Leo
- Amy Hill as Joscelyn Davis
- John Cho as Dustin "Dusty" Wong
- Taran Killam as Brett Callaway. He is a skateboard punk who consistently bullies Jason and also has a crush on Kaylee.
- Jake Miner as Aaron
- Sparkle as Grandma Pearl, Kaylee's senile grandmother.
- Chris Ott as Shandra Duncan
- Kenan Thompson, Dustin Diamond, Shawn Levy, Corinne Reilly, and Bart Myer as Wolf party guests
- Brian Turk as the Masher, a monster truck driver
- John Gatins as tow truck driver
- What I Like About You TV Series commercial
- E.T. The Extra Terrestrial Trailer
- Dr. Seuss' The Grinch Who Stole Christmas live action Trailer
- Spirit: Stallion of the Cimarron Trailer
- DreamWorks VHS Movies Trailer
- Mummy: Quest for the Lost Scrolls Trailer
- Butt-Ugly Martains Promo
- Rated PG for some language
- Warning Screen
- Picture Formatting Screen