Alan Wake (voiced by Matthew Porretta) is a bestselling crime fiction author suffering from a two-year stretch of writer's block. He and his wife Alice travel to the small mountain town of Bright Falls, Washington for a short vacation at the advice of their friend and agent Barry Wheeler. Before arriving, Alan has a nightmare about shadowy figures who try to kill him, when an ethereal figure in a diving suit intervenes in the dream and teaches him how to utilise light to fend off the shadows.

Upon arrival in Bright Falls, Alan goes to a diner to retrieve the keys to their cabin from Carl Stucky, the landlord, but instead encounters a mysterious old woman, who tells him that Stucky had fallen ill and she was entrusted to give Alan the keys. The woman directs the couple to a cabin on an island in the middle of Cauldron Lake, a volcanic crater lake, where Alan experiences a vision of the old woman. As they unpack, Alice reveals that the real purpose of their trip is to help break his writer's block by arranging for him to see a famous Bright Falls psychologist named Dr. Emil Hartman. Alan is infuriated and storms out, only to rush back when he hears Alice crying for help. He returns just as Alice is dragged into the lake's waters by a mysterious force. Alan dives in after her, blacking out as he submerges.

After yet another hallucination of the old woman, Alan regains consciousness, apparently having driven his car off the road with no memory of how he got there. He attempts to reach a nearby gas station but progress is hampered by murderous, shadowy figures resembling those in his dream. While fighting the shadows with light, Alan repeatedly encounters an ethereal figure in a diving suit similar to the one from his dream, who leaves behind pages of a manuscript entitled Departure. Ostensibly written by Alan, he has no memory of writing. He soon discovers that the events of the manuscript are coming true and that the shadowy figures, named "Taken," are townsfolk possessed by a dark force. After killing a possessed Carl Stucky and reaching the gas station, Alan tries to alert Sheriff Sarah Breaker of his wife's disappearance but Sheriff Breaker states that there has been no island or cabin in Cauldron Lake for decades after it sank in a volcanic eruption. Breaker believes Alan is mentally unwell and takes him to the police station. Meanwhile, Barry arrives in Bright Falls in search of Alan.

At the police station, Alan lies to hide the hallucinations he's been experiencing. He receives a call from a man purporting to be Alice's kidnapper, demanding the pages of Departure in exchange for her. Emil Hartman appears at the station to invite Alan to stay at his psychiatric hospital, Cauldron Lake Lodge—Alan punches Hartman as a response. Alan meets the kidnapper at a nearby national park, who demands pages of Departure as ransom. The two fight before the kidnapper runs off into the night.

Alan and Barry attempt to retrieve more pages and attract the attention of FBI agent Robert Nightingale. Alan leaves Barry behind and flees Nightingale, who chases him through the forest unsuccessfully. He meets the kidnapper again to deliver the pages. As he arrives at the location he witnesses the kidnapper being tortured by the mysterious old woman, confessing that he never actually had Alice. Alan and the kidnapper are then attacked by a dark tornado that hurls Alan into Cauldron Lake.

He awakens in the lodge overlooking Cauldron Lake under the care of Hartman who claims Alan is experiencing a psychotic break, triggered by Alice drowning. He claims the supernatural phenomena Alan has been experiencing were all fabrications of his imagination. Alan attempts to escape the lodge as the shadowy force starts to attack it, learning in the process that the fake kidnapper was employed by Hartman to lure Alan to him. Hartman tries to stop Alan from escaping, and gives the impression that he is aware of the supernatural events surrounding the lake. Barry helps Alan escape the lodge before the shadow subsumes it and all those inside.

Alan and Barry gradually begin to learn the truth about Cauldron Lake from other townsfolk. An entity known as the Dark Presence is trapped within the lake, attempting to escape by using the lake's power to turn fiction into reality. It had previously tried this with a poet named Thomas Zane— the figure in the diving suit — by taking the form of his spouse who drowned in the lake, Barbara Jagger; the old woman who Alan has encountered. Zane was able to resist its will and used his writings to cause the volcanic eruption that sank the island, stranding himself within the lake. The Dark Presence has grown strong enough to start to influence the townspeople and create the forces that have pursued Alan. That night as Alan and Barry take shelter, they get drunk on moonshine and Alan recall memories of being forced to write Departure during the prior week. He realised that the Dark Presence is trying to use his writings to escape, holding Alice in the lake so to coerce him.

Alan and Barry are arrested by Robert Nightingale but the Taken assault the police station and drag Nightingale away. Sheriff Breaker, now convinced of the Dark Presence's existence, helps Alan and Barry to reach Cynthia Weaver, a hermit who knew Thomas Zane and prepared countermeasures for the Dark Presence's return. Weaver leads them to the "Well-Lit Room" containing a light switch known as the Clicker, which, through the power of Alan's writings, possesses the narrative ability to destroy the Dark Presence. Alan returns to Cauldron Lake alone and dives in, finding himself in a surreal alternate dimension known as the Dark Place, where thoughts and ideas become reality. Alan encounters Jagger and destroys her with the Clicker; realising he must maintain balance in the story, Alan completes Departure by freeing Alice, but strands himself in the Dark Place in the process. Finishing Departure, Alan writes the final line, "It's not a lake, it's an ocean."