No one is going to leave shutter island unscathed.

In 1954, U.S. Marshal Teddy Daniels (Leonardo DiCaprio) and his partner, Chuck Aule (Mark Ruffalo), go to the Ashecliff Hospital for the criminally insane on Shutter Island. They are investigating the disappearance of Rachel Solando (Emily Mortimer), a patient who vanished from a locked room. Dr. John Cawley (Ben Kingsley), the head psychiatrist, explains that Rachel was institutionalized after drowning her three children. She believes, however, that she is still home and that her children are still alive.

The cliffs surrounding the perimeter make it impossible for Rachel to have reached the nearby caves. Teddy sees a lighthouse but is told it has already been searched. The Marshals question the staff and learn that Rachel’s psychiatrist, Dr. Sheehan, left for vacation that morning. Teddy asks to see the hospital’s personnel files but Cawley refuses. That night, Teddy has strange dreams about his wife, Dolores (Michelle Williams), who died in a fire two years before. She tells him Rachel is still on the island, as is Andrew Laeddis, the man who started the fire.

In the morning, they interview patients from Rachel’s group therapy sessions, one of whom passes Teddy a warning to run. Teddy explains to Chuck the real reason he took the case: after being transferred to Ashecliff, Andrew Laeddis disappeared. When Teddy investigated, he met a former patient who claimed that the facility was performing human experiments. Rachel is finally found near the lighthouse but she is unresponsive to Teddy’s questioning. He eventually finds George Noyce (Jackie Earle Haley), the man who told him about the experiments. George says that the whole situation is a game for Teddy’s benefit and that he is afraid of being taken to the lighthouse.

Teddy tries to reach the lighthouse and discovers a cave where the real Rachel Solando (Patricia Clarkson) is hiding. She was a doctor at Ashecliff until she found out about the experiments and was committed as a patient. She explains that the hospital is using psychotropic medication in an attempt to master mind control, with the goal of creating sleeper agents for use in the Cold War. She says that Teddy has been similarly drugged since he arrived on the island.

Teddy finally makes it to the lighthouse and finds Cawley waiting at the top. The doctor reveals that Teddy is actually Andrew Laeddis. He murdered his manic depressive wife after she drowned their three children, and then created a fantasy where he was a hero to cope with the pain. He invented Rachel Solando as part of his delusion. He has been under the care of Dr. Sheehan, the man he thought was Chuck, for two years. Sheehan and Cawley decided to try a roleplay experiment, allowing Andrew to live out his delusions in an attempt to bring him back to reality.

Andrew’s memory comes back and he makes peace with his past, but later, while talking to Dr. Sheehan, he once again refers to him as "Chuck", indicating to Dr. Sheehan that he once again believes he is Teddy and that the experimental role play therapy had apparently failed. Dr. Sheehan silently shakes his head to the head staff to announce the supposed failure, to prepare for the lobotomy of Andrew as a last resort treatment. As the orderlies approach him, Andrew asks Dr. Sheehan if he thinks it would be worse to live as a monster or die as a good man, before he walks away willingly and knowingly to be lobotomized. The look of surprise on Sheehan's face at this comment and the complacency with which Andrew departs suggests that the role play treatment had succeeded, and that he would rather forget his trauma through lobotomy than live with the pain of the death of his family.

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