Lonesome Jim premiered at the 2005 Sundance Film Festival where it was nominated for the Grand Jury Prize but it lost the award to Ira Sachs' Forty Shades of Blue.

Jim (Casey Affleck) is a perennially gloomy 27 year-old aspiring novelist from Goshen, Indiana who moved to New York City in hopes of finding success with his writing. After two years of barely making a living as a dog walker, he defeatedly decides to move back home to his parents' house in Goshen.

Jim's 32 year-old brother Tim (Kevin Corrigan) is a recently divorced father of two young girls whose business recently failed. Tim has moved back into his parents' home and he works in the ladder factory that's owned and operated by their pessimistic father Don (Seymour Cassel) and overly cheerful mother Sally (Mary Kay Place). Jim has no interest in the family business and he resists pressure from Don to start working there.

Jim meets Anika (Liv Tyler), a nurse, in a bar and they end up having sex in a hospital bed, though Jim finishes embarrassingly early.

After an argument between the two brothers on whose life has been more pathetic so far, Tim, having previously made repeated unsuccessful attempts to commit suicide, drives his car into a tree in hopes of ending his life; he is gravely injured and hospitalized. Jim now finally gives in to Don's pressure to work in the factory by taking over Tim's duties. He also takes over Tim's job as the coach of a girls basketball team; the team, which has not scored a single point in the last 14 games, includes both of Tim's daughters.

While visiting Tim is in the hospital, Jim runs into Anika, who works in another department. They arrange a date, but on arriving to collect her, he discovers she is a single mother. Their relationship progresses, however. Anika is sympathetic to Jim's problems, and she decides to stand by him in encouragement even when he tries to convince her that it's in her best interest to not be around him.

At the ladder factory, Jim encounters his uncle Stacy (Mark Boone Junior), who prefers to be called "Evil." Jim seeks advice from Evil about premature ejaculation, and they become friends of a sort. Evil offers Jim some recreational drugs and asks Jim to open a checking account for him so he can pay for things by mail. Evil gives Jim $4,000, saying it is saved-up birthday and Christmas presents.

Jim's mother, Sally, is arrested by DEA officers for allegedly shipping illegal drugs through the store's Fedex account. It transpires that Evil is the drug dealer, but Jim cannot persuade him to confess. Evil points out that Jim will be implicated if he tries to report Evil, as he has opened an account with Evil's cash and will test positive for drug use. Eternal optimist that she is, Sally finds happiness in her new surroundings and makes friends with her fellow prisoners. Eventually she is released on bail.

Despite working a job he hates and feeling responsible for his mother's imprisonment, Jim slowly allows his monumental depression to be dismantled by Anika and finds himself believing that life is worth living. Jim invites Anika and her son to move to New Orleans with him, but after Jim vacillates, she is offended and this seems to be off the cards. Jim finally decides to leave town for New Orleans by himself, leaving a note for his parents promising not to take their love for granted again and revealing Evil as the drug dealer. Anika shows up at the bus station to say good-bye, but seems to Jim miss the opportunity to reconcile with her. Jim departs on the bus, but as Anika drives home with her son, Jim is seen running after them, luggage in hand.

The film was originally a part of a deal with Universal Studios and had a proposed budget of $3 million. However, the deal with Universal was unexpectedly cancelled and Lonesome Jim then ended up being shot and produced on a meager budget of $500,000 with the original filming schedule being reduced from 30 down to 17 days. As a cost saving measure, screenplay writer James C. Strouse, a native of Goshen, Indiana, employed two of his nieces as actors in the film, another family member as location manager, as well he used his parents' home and factory as a location for Jim's parents' home and factory. More money was saved by recording the entire film onto a mini-DV digital video camera rather than a film camera.