The story of Ananthabhadram is a fairy tale. Set in rural Kerala, the tale is dominated by black magicians, martial arts experts, sorcerers and seductresses. Sivan said "it was the story of Ananthabhadram that captivated me. The stories my grandmother used to tell me used to take me to a world of mystery. It was the same feeling when I heard this story and I have tried to capture that in my film. Parameswaran says, "The fables that my grandmother narrated to me when I was a kid was there at the back of mind and that has been a source of my stories.
The movie opens with little Ananthan hearing a tale from his mother (Revathi). She tells him that his family in the ancient village of Shivapuram comes from a line of powerful magicians. The family is responsible for protecting nagamanikyam (a jewel on the serpent's head), which lies in a secret place in the house guarded by snakes, including a tiny snake called Kunjootan.
The real story begins when Ananthan (Prithviraj Sukumaran) returns to his ancestral village of Sivapuram from the US to light the lamps at Shivakavu, a dark and mysterious temple of Shiva, obeying the long-standing wish of his dead mother. On his way home he meets Maravi Mathai (Cochin Hanifa), the story's comic relief, on the train. The local black magician Digambaran (Manoj K Jayan) opposes the lighting on the grounds of local superstitions in order get his hands on the nagamanikyam, and disbeliever Ananthan meets the supernatural for the first time in his life.
Chemban (Kalabhavan Mani), the blind martial arts expert, stands in Digambaran's way; the evil black magician manages to remove Chemban from his way, and leaves a trail of blood in his wake. Digambaran lures Chemban's sister and his lover Bhama (Riya Sen) a series of sensuous and evil magical rites that feature a wide paraphernalia of the exotic, including Kathakali movements, traditional magic spells, special effects, and make-up artist Pattanam Rasheed's black-and-red face paints.
Meanwhile, Ananthan's cousin Bhadra (Kavya Madhavan) falls for him and his light-hearted flirting, eventually leading to a commitment of love between them. In his effort to fit into the local environment, Ananthan wins the villagers' hearts by his easy kind manners; breached only when the magician takes over his mind for a short while. Bhadra faces the dilemma of choosing between Ananthan's love and becoming a Devi (goddess) in a mystical ritual of self-offering.
In the end, Ananthan and Bhadra escape Digambaran's sinister tricks and unravel his conspiracy in front of the villagers, who always believed him to be a benevolent mystic. The fight to the end sees Digambaran destroyed and Ananthan restoring the nagamanikyam.