The storyline of the movie takes place between 1992-1995, beginning with scenes from the 1992 Los Angeles Riots. Hilary Swank plays the role of Erin Gruwell, a new, excited schoolteacher who leaves the safety of her hometown, Newport Beach, to teach at Woodrow Wilson High School in Long Beach, where a new integration program puts students of all backgrounds and races in classes together. Her enthusiasm quickly dwindles away when she realizes that her class (all at-risk students, also known as "unteachables") are not the happy-go-lucky eager students she was expecting. They must be forced into class by security guards and segregate themselves into racial groups in the classroom. The tension is apparent every time students from one race look at those from another. Not only does she meet opposition from her students, she also has a hard time with her department head, who believes she should focus less on teaching her students to learn and read, and more on teaching them discipline and obedience.

One night, two students, Eva and a Cambodian refugee, Sindy (Jaclyn Ngan), find themselves in the same convenience store. Another student, Grant Rice (Armand Jones), is frustrated at losing an arcade game and demands a refund from the owner. When he storms out, Eva's boyfriend attempts a driveby shooting, accidentally killing Sindy's boyfriend. As Eva is a witness, she must testify at court; she intends to protect her own kind in her testimony.

At school, Gruwell intercepts a racist drawing of one of her students and uses it to teach them about the Holocaust. She gradually begins to earn their trust and buys them composition books to record their diaries, in which they talk about their experiences of being abused, seeing their friends die, and being evicted. Determined to reform her students, she takes two part-time jobs to pay for more books and spends more time at school, to the disappointment of her husband (Patrick Dempsey). Her students start to behave with respect and learn more. A transformation is especially visible in one of her students, Marcus (Jason Finn). She invites several Holocaust survivors to talk with her class about their experiences and takes them on a field trip to the Museum of Tolerance. Meanwhile, her unorthodox teaching methods are scorned by her colleagues and department chair Margaret Campbell (Imelda Staunton). The next year comes, and Gruwell teaches her class again for sophomore year.

In class, when reading The Diary of a Young Girl, they invite Miep Gies to talk to them. After fundraising the money to bring her over, she tells them her experiences hiding Anne Frank. When Marcus tells her that she is his hero, she denies it, claiming she was merely doing the right thing. Her denial causes Eva to rethink lying during her testimony. When she testifies, she finally breaks down and tells the truth, much to some family members demise. Meanwhile, Gruwell asks her students to write their diaries book form. She compiles the entries and names it The Freedom Writers Diary.

Her husband divorces her and Margaret tells her she cannot teach her kids for their junior year. She fights this decision, eventually convincing the superintendent to allow her to teach her kids' junior and senior year. The film ends with a note that Gruwell successfully brought many of her students to graduation and college. 

But even an ordinary secretary or a housewife or a teenager can, within their own small ways,

turn on a small light in a dark room. You are the heroes. You are heroes every day. 

I am not a hero. No. I did what I had to do, because it was the right thing to do.

That is all.

― Miep Gies, The Freedom Writers Diary