One evening, an elderly woman tells her granddaughter a bedtime story of where snow comes from, by telling her the story of a young man named Edward (Johnny Depp), who has scissors for hands, the creation of an old Inventor (Vincent Price). The Inventor's final result was a humanlike young boy who had everything except for hands, but the Inventor suffered a heart attack and died while in the act of giving a pair of real hands to Edward, leaving him "unfinished" forever.
Many years after Edward was created, local Avon saleswoman Peg Boggs (Dianne Wiest) visits the decrepit Gothic mansion on the hill where Edward lives. There, she finds Edward alone, and upon realizing he is virtually harmless she decides to take him to her home. Edward becomes friends with Peg's young son Kevin (Robert Oliveri) and her husband Bill (Alan Arkin). He later falls in love with the Boggs' beautiful teenage daughter, Kim (Winona Ryder), despite her initial fear of him.
Peg's neighbors are impressed by Edward's adept hedge-trimming and hair-cutting skills (both of which he does with his scissor-hands), but two of the townspeople, a religious fanatic named Esmeralda (O-Lan Jones) and Kim's boyfriend, Jim (Anthony Michael Hall), are not impressed. One of the housewives in the neighborhood, Joyce (Kathy Baker), an ageing seductress, suggests that Edward opens a hair-cutting salon with her. While examining a proposed site, she attempts to seduce him in the back room, causing Edward to flee in a state of panic.
Wanting money for a van, Jim takes advantage of Edward's ability to pick locks, and uses this as an attempt to break into his parents' house. The burglar alarm sounds and everyone except Edward flees, despite Kim's angry insistence that they return for him. Edward is arrested, but is released when a psychological examination reveals that his isolation allowed him to live without a sense of reality and common sense. At the same time, the arresting officer befriends him. Meanwhile, infuriated by Edward's rejection, Joyce exacts revenge by claiming that he tried to "rape" her. This, added to the "break-in", causes many of the neighbors to question his personality and, therefore, ruin his popular reputation. During the Christmas season, Edward is feared and outcasted by almost everyone around him except the Boggs family, resulting in the family becoming outcasts as well.
While the family is setting up Christmas decorations, Edward creates an angel ice sculpture. The shavings create an effect of falling snow, which Kim dances under. Jim calls out to Kim, distracting her, and Edward accidentally cuts her hand. Jim says that Edward had intentionally harmed her and attacks him. Edward runs away, tearing the clothes Peg gave him, and wanders the neighborhood in a rage. Kim, fed up with Jim's behavior towards Edward, breaks up with him and he goes to his friend's van to get drunk. While Peg and Bill search for Edward, he returns and Kim greets him with a hug. When Kevin is almost run over by Jim's drunk friend, Edward pushes him out of the way, but cuts his face, causing witnesses to think he was attacking him. When the police arrive, Edward flees to his hilltop mansion and the neighbors form an angry mob, led by Joyce, and follow, despite Peg and Bill's pleas. Officer Jim tries to deceive everyone by firing a few shots into the air to give the impression that Edward is dead, but the mob refuses to listen and they continue to the mansion to see if Edward really is dead.
Kim runs to the mansion and reunites with Edward. Jim follows her, attacks Edward and angers him when Jim brutally assaults Kim. Edward stabs Jim in the stomach and pushes him out a window, falling to his death. Kim confesses her love for Edward and shares a kiss with him as they say goodbye. Returning downstairs, Kim lies to the townspeople saying that Edward and Jim killed each other in the fight. She tells them that the roof caved in on them and shows them a disembodied scissor-hand similar to that of Edward's. Shocked and saddened over his death, the neighbors return home. At the same time, the guilty Joyce realizes what her lies have done.
The elderly woman (who is actually revealed to be Kim in her old age) finishes telling her granddaughter the story, saying that she never saw Edward again. She decided not to visit him because she wanted him to remember her as she was in her youth. She also mentions that Edward is still alive, seemingly immortal since he is artificial and can never age, and he "creates snow" from his ice sculptures, which falls upon the neighborhood below. She tells her granddaughter that "Sometimes you can still catch me dancing in it." While Edward creates more ice sculptures, a flashback of a young Kim is shown dancing under the snow falling from the angel ice sculpture above her. (Source: WikiPedia.)