In 1933, after leaving Dogville, Grace Margaret Mulligan sees a slave being punished at a cotton farm called Manderlay. Officially, slavery is illegal and Grace stands up against the farmers. She stays with some gangsters in Manderlay and tries to influence the situation. But when harvest time comes, Grace sees the social and economic reality of Manderlay.

A mysterious woman named Grace hides in a small mountain town from criminals who pursue her. The town is two-faced and offers to harbor Grace as long as she can make it worth their effort, so Grace works hard under the employ of various townspeople to win their favor. Tensions flare, however, and Grace's status as a helpless outsider provokes vicious contempt and abuse from the citizens of Dogville.