The plot of Donnie Darko is somewhat confusing, and much of it deals with paradoxes which are never explicitly explained. As such, multiple interpretations exist.
The film is set in 1988, an election year, in Middlesex, Virginia.
In the middle of the night, on October 2, 1988, Donnie is awakened from his sleep by a strange voice and led out onto a golf course where he converses with a man-size demonic-looking rabbit named Frank who tells him that the world will end in 28 days, 6 hours, 42 minutes and 12 seconds. (Some viewers have seen here a reference or homage to the 1950 motion picture Harvey, but director Kelly has denied any such intention and in fact has stated that he had never seen Harvey before directing this film. However, the film is situated within a larger cultural discourse in which rabbits have a paranormal quality, including the White Rabbit in Alice in Wonderland which leads Alice into a parallel universe through a rabbit hole - perhaps an echo of the wormhole - see below.) After waking up on the golf course the next morning, Donnie returns home to discover that a huge jet engine has fallen from the sky and into his bedroom. So begins a series of events which brings Donnie and a young woman named Gretchen together.
There is an early indication of Donnie's mental illness (specifically psychosis) when his sister accuses him of not taking his medication. Donnie continues to see Frank and begins to see "liquid spears" emerging from people's chests, the paths of which indicate the actions those people will undertake in the immediate future. Whether this is indicative of mental illness, science fiction, or both, is left to the viewer.
Richard Kelly, while not denying the viewers' personal interpretations, has made his own clear through the audio commentaries on the two DVDs, the included Philosophy of Time Travel, and in various interviews. His intended plot is as follows: At midnight a Tangent Universe spins off of the Primary Universe, signified by the appearance of an Artifact; here represented by a jet engine. Tangent Universes are inherently unstable and will collapse in less than a month, taking the Primary Universe with it, if not closed off. Closing the Tangent Universe is the duty of the Living Receiver (Donnie), given super powers to perform this task. Those who die within the Tangent Universe are the Manipulated Dead (Frank and, according to the back of the book, Gretchen) who are also given certain powers, understanding of what is going on, and the ability to contact the Living Receiver via the Fourth Dimensional Construct (water). Everyone else in the orbit of the Living Receiver are the Manipulated Living, who are subconsciously drawn to push and prod the Living Receiver towards his destiny, closing the Tangent Universe and, apparently, dying by the Artifact.
If we follow Kelly's interpretation, the chain of events in brief is as follows: the Manipulated Dead, Frank, rouses Donnie, the Living Receiver, from his bed, and compels him to leave his house, starting a causal loop. Frank tells him that the Tangent Universe will collapse in 28 days. The next day Donnie goes to school. His English teacher, strangely, tells new girl Gretchen to sit next to the cutest boy in the room and she chooses Donnie (this begins the romance that ends badly and pushes Donnie to his final action). That night Frank appears to Donnie and makes him flood the school. As a result Donnie walks Gretchen home and asks her out. A bit later, Frank appears to Donnie and tells him to "burn it to the ground", so Donnie burns down the house of Jim Cunningham, a motivational speaker. When the firemen come to investigate the fire, they discover a secret room filled with pedophilic material. As a result, Donnie's conservative physical education teacher decides to defend Cunningham, who she believes has been framed. This causes Donnie's mother to chaperone her daughter's dance troupe on their way to California to perform on Star Search (they board the airplane whose engine becomes the artifact in the Tangent Universe). Because of this, Donnie and his older sister, Elizabeth, are able to throw a party while the parents are away. This leads to a romantic interlude between Donnie and Gretchen. At the same time, Frank, a friend of Elizabeth's, realizes they've run out of alcohol at the party and drives off with a friend to pick up more beer.
After their interlude Donnie decides to take Gretchen to see Grandma Death (aka Roberta Sparrow, the author of Philosophy of Time Travel). They stumble upon two bullies that were searching through Ms. Sparrow's cellar for her rumored treasure. Donnie, Gretchen and the bullies struggle, and Gretchen is thrown into the road. Roberta Sparrow, a senile old woman, is standing in the middle of the road when Frank comes upon her in his car. He swerves to avoid her, but hits Gretchen, killing her. Donnie becomes enraged and kills Frank, becoming willing to do what must be done in order to save Gretchen. The plane with his mother and sister passes by the wormhole (or timestorm as referenced in the DVD) and the engine is ripped off and thrust back in time. The audience knows that the mom and sister are on this plane, after Mrs. Darko leaves a message saying that they are catching the red eye back. Donnie reappears back in his room in the Primary Universe, and lies in his bed laughing as the engine falls through the roof and kills him. After experiencing the Tangent Universe, and seeing the paths that every living thing follows throughout time, Donnie dies so that Gretchen, his mother, his sister and Frank may live. According to the Philosophy of Time Travel, every Living Receiver dies by the Artifact.
The film carefully leaves open the possibility that the entire alternate-universe sequence of events may be Donnie's (or even, perhaps, his mother's) hallucination, reverie, fantasy, or dream (and Kelly has hinted in interviews that dreams and alternate universes just might be the same thing). At any rate, the story draped on this science-fiction backbone includes a good deal more than speculative inquiry into time travel; the film is also, for example, a darkly comic satire of public education (although Donnie's school is in fact private), and so-called self help gurus; and Jake Gyllenhaal has received much praise for his performance as the disaffected, alienated, yet charming Donnie.
Much of the backstory is explained on the official Donnie Darko website, which acts as a combination puzzle and teaser for the movie. It shows that Donnie was institutionalized before the events of the movie occur, and offers other details that help in explaining the goings-on of the movie. The director's commentary on the DVD also gives crucial details, such as the point of departure between the real world and the alternate universe — not when the engine crashes through the ceiling, but instead a few minutes before, when Donnie is called out to meet Frank for the first time.
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Wikipedia)