A photograph and an audio recording on reel-to-reel tape are dropped off anonymously at the home of Edward Wilson (Matt Damon), a senior CIA officer, after the 1961Bay of Pigs Invasion of Cuba fails due to an undisclosed leak. While riding to work on the bus, Edward is approached by a young boy who asks if Edward has change for a dollar. Upon arriving at work, Edward's assistant checks the serial number of the dollar against a long list of serial numbers assigned to various code names and confirms that Edward has been given a dollar from "Cardinal". The story then flashes back to 1939.
In 1939 Edward is at Yale University and is invited to join Skull and Bones, a secret society. He is compelled to disclose a secret as part of his initiation: he reveals that as a young boy in 1925 he discovered the suicide note left by his father, Thomas (Timothy Hutton), although he says he never read it. After the ceremony, a fraternity brother tells him that Edward's father, an admiral, was to be chosen as Secretary of the Navy, until his loyalties were questioned. Afterwards Edward is recruited by anFBI agent Sam Murach (Alec Baldwin), who claims that Edward's poetry professor, Dr. Fredericks (Michael Gambon), is a Nazi spy, asking Edward to expose his professor's background as well as implying that the Professor is homosexual: Edward's actions result in Dr. Fredericks' forced resignation from the university.
Edward begins an affair with a deaf student named Laura (Tammy Blanchard), but while on Deer Island, Edward meets and is later aggressively seduced by Margaret 'Clover' Russell (Angelina Jolie), his friend's sister. General Bill Sullivan (Robert De Niro) asks Edward to join the OSS, offering him a post in London.
Later while Edward and Laura are at the beach, Clover's brother, John, privately reveals that Clover is pregnant with Edward's child and asks him to "do what is expected." Laura, an able lip-reader, sees and walks away. Edward marries Clover. At the wedding reception Edward accepts an offer of a position in the London OSS office from General Sullivan, requiring him to be in England in one week, leaving his newlywed wife. In London he meets his former professor Dr. Fredericks, who is actually a British intelligence operative who had sought to infiltrate a Nazi organization while at Yale, causing the American authorities to suspect that he was a Nazi spy. Despite this, Fredericks recognized Edward's gifts and recommended that he be trained in counter-espionage in London.