The novel is set in Oregon in the 1950s, primarily inside a mental hospital for men. It is based on what Kesey witnessed when he worked as a night aide in a real veterans' hospital during this era. The hospital is a highly restrictive setting.
Men who resist any of the staff's orders are drugged, subjected to electroshock therapy, or even lobotomized. The patients sleep in dormitories that do not afford them any privacy. They are locked out of their dorms during the day so that they do not have the option to rest when they are supposed to be doing chores or other activities planned by Nurse Ratched. When the men want to open up a second room for leisure time so that they can have more than one option for an activity, Nurse Ratched holds it over their heads as if it is a great privilege they must earn. She manipulates the men into factions, pitting "Chronic" long-term patients against "Acute" short-term patients. She especially pits the patients (many of whom are white) and the Black aides against one another. Until McMurphy shows up and rallies the patients together against Nurse Ratched, there is very little solidarity on the ward. Every man looks out for his own survival.
The hospital's location in Oregon at first seems somewhat arbitrary given that Bromden, the narrator, hasn't even looked out the window for years. It is easy to attribute the Oregon setting to the fact that this is Kesey's home state. However, as the book goes on, it becomes clear that Oregon is important to Bromden as well. He grew up in the Columbia River Gorge, an incredible river canyon. He reveals to the reader through a series of flashbacks that he witnessed the area undergo major transformation when industrialists built a dam and destroyed the ecosystem that was once central to his American Indian family's way of life. In the novel, the ecological and social devastation wrought by the dam represents the overall impact of industrialization and capitalism on the world. These systems, Kesey argues, destroy lives wherever they go. By the end of the novel, however, Bromden makes a break for it. McMurphy has at last inspired him to leave the hospital and keep fighting for a better world.