The film opens in East Berlin in 1978. Christiane (Kathrin Sass), a pre-school teacher, is questioned by the secret police about her husband Robert (Burghart Klausner) who has defected to West Berlin. After emerging from a long period of depression that distances her from her son Alex and daughter Ariane, she becomes a dedicated Socialist, working to improve the conditions of ordinary people, especially children, and writing letters complaining of the poor quality of East German products. We then jump ahead ten years to the autumn of 1989, when Christiane suffers a heart attack that leaves her in a coma for eight months, after witnessing her now twenty-year old son Alex (Brühl) being arrested in a street demonstration promoting reunification.

When she wakes up from her long sleep, the German Democratic Republic (GRE) is no longer a political entity, the Berlin Wall has been torn down, and President Honecher has resigned. Alex is now a satellite dish salesman with a Russian girlfriend named Lara (Chulpan Khamatova). His sister Ariane (Maria Simon) works at Burger King. The doctors warn Alex that any sudden shock could be fatal to his mother's health, so he decides to pretend that the world is exactly the same as her mother remembers. He then recreates a pre-1989 world to the finest detail, fixing their apartment with the same drab furniture exactly the way she remembers, and scouring the garbage bins to find East German bottles and labels that he can fill and pretend they are her beloved Spreewald pickles and other unavailable GDR products.

The most audacious deception occurs when Alex enlists his colleague Denis (Florian Lukas), a budding filmmaker, to shoot their own fake news reports for Christiane to watch on TV, mimicking the style and language of the official state newscasts of Aktuelle Kamera. The façade of lies threatens to crumble when Christiane sees a huge Coca-Cola sign and when she watches West German posters and cars in the street from her window. Alex, keeping the charade going, explains that the East Germans invented the formula for Coke which was stolen by the West, and that West Berliners are now taking refuge in the East by the thousands. Ultimately however, Alex, a staunch supporter of Western-style living, begins to look back with nostalgia on the old GDR regime. He longs to return to a past that never was, admitting, "the GDR I was creating for my mother was more like the GDR I would have wished." The fantasy he has created becomes more his own wish fulfillment than a protective cover for his mother.