You had a few mismatches between vgs and Vgs. Matlab is case sensitive. Try
W=40;
Vth=0.45;
Leff=0.15;
k=4.255*(10^-4)*(W/Leff);
lambda=25*10^-5;
Vgs=linspace(0,2,5);
Vds=[0.2 1 2];
m=length(Vds);
for k1 = 1:numel(Vgs)
for i=1:m
if Vgs(k1) < Vth
current(k1,i)=0;
elseif Vds(i) >= (Vgs(k1) - Vth)
current(k1,i)=0.5* k * ((Vgs(k1) - Vth).^2);
elseif Vds(i) < (Vgs(k1) - Vth)
current(k1,i)= k*((Vgs(k1)-Vth)*Vds(i) - 0.5*(Vds(i).^2));
end
end
end
figure
plot(Vgs,current, 'LineWidth',1.5)