Wealthy industrialist Robert Talbot arrives early for his annual vacation at his luxurious Italian villa to find three problems lying in wait for him. Firstly, his long-time girlfriend Lisa Fellini has given up waiting for him to pop the question and has decided to marry another man. Secondly, the major domo of his villa, Maurice Clavell, has turned the estate into a posh hotel to make some easy money while the boss isn't around. And, finally, the current guests of the "hotel" are a group of young American girls trying to fend off a gang of oversexed boys, led by Tony, who are 'laying siege' at the outer walls of the villa. Talbot, to his own surprise, finds himself becoming an overprotective chaperone.

As a child, Princess Dala is given, by her father, the largest diamond in the world, in which if you stare into it can be seen a "Pink Panther" hence the name. However, now as a young woman, rebels in her home country have seized power and are demanding the return of the jewel. Dala relaxes on holiday in an exclusive skiing resort but noted British playboy, Sir Charles Lytton is in town. He is secretly "The Phantom" - infamous jewel thief who has eyes on the Pink Panther. Charles's playboy nephew George follows to the resort in an attempt to steal it and blame it on "The Phantom", not knowing that it's his uncle. On the Phantom's trail is Inspector Jacques Clouseau, from France, and his wife who, unknowingly to Jacques, is the lover of Charles and helper in the Phantom's crime. Jacques tries to stop the attempts but he is so clueless that when several attempts are made at a fantasy-dress party...