Cole Matthews is a teenage delinquent who's in big trouble for beating up a kid named Peter Driscal. He's unrepentant and even though he is facing serious jail time, his kindly parole officer, a man named Garvey, gets him into this Native American justice program called Circle Justice.
The idea is that his sentencing will be focused on healing rather than punishment—and the Circle Justice elders tell him that he'll be going to a remote island in Alaska for a year in order to live off the land and think about his mistakes. Cole goes along with this because he doesn't want to go to jail, but deep down inside he's just planning to escape as soon as they leave him alone on the island.
Garvey and an elder named Edwin drop Cole off at the island. As soon as they leave, Cole torches the shelter and tries to swim over to the next island over in order to escape and never return. But the tide keeps pushing him back in, and eventually he has to return to shore and wait it out.
Before he can try escaping again, Cole runs into Spirit Bear—a huge, all-white bear that Edwin told him was a spiritual being. Instead of respecting Spirit Bear, though, Cole tries to kill him…which leads to the bear mauling him and leaving him bleeding and in pain. Cole almost dies during this time period, but in the process, he thinks a lot about his life and how he's made some serious mistakes. Before he can die, Edwin and Garvey come back and find him and take him back to safety. Thanks, guys.
Cole returns to Minneapolis (his hometown), where he recovers and is pretty sure that he's going to get sent to jail after squandering his time on the island. He also spends more time with his mother, who apologizes for not being there for him in his childhood. His father, however, doesn't visit because he's been arrested for child abuse—finally—after hurting Cole for years. In the end, Edwin and Garvey advocate for Cole to return to the island because they've seen a change in him. So after he recovers physically, they take him to the island and drop him off again.
This time, Cole takes his time on the island seriously. He does everything that Edwin tells him to do, including soaking in a freezing cold pond every morning and rolling an "ancestor rock" up and down a big hill. He also starts getting more in touch with nature by doing animal spirit dances every night and carving his own totem pole. He wants to become a better person and do the right thing, but he's dismayed when he hears that Peter Driscal has tried to commit suicide twice—he's obviously hurting a lot more than Cole realized.
Cole comes up with the idea of inviting Peter to the island in order to learn from it the way Cole himself has. At first Peter's parents are completely against the idea (gee, we wonder why), but Garvey agrees to take some vacation time to come to the island and chaperone the boys. When Peter arrives, he's scared of Cole and filled with anger; he won't go anywhere near the guy and tries to pick a fight with him at every turn. But Cole patiently introduces Peter to all of the things that Edwin taught him, and slowly Peter starts to heal, even agreeing to work on his very own totem pole.
One day, Peter comes with Cole to soak in the pond and ends up trying to beat him up in retaliation for Cole's attack on him. Cole refuses to fight back, though, and soon Peter stops. Just at that moment, both boys see Spirit Bear and share a magical moment. At the end, Garvey finds Peter helping Cole with his totem pole, carving a spot to represent their anger: a circle that has no beginning or end.