The small state of Freedonia is in a financial mess, borrowing a huge sum of cash from wealthy widow Mrs. Teasdale. She insists on replacing the current president with crazy Rufus T. Firefly and mayhem erupts. To make matters worse, the neighboring state sends inept spies Chicolini and Pinky to obtain top secret information, creating even more chaos!

The opening title reads: "A comedy with a smile--and perhaps a tear". As she leaves the charity hospital and passes a church wedding, Edna deposits her new baby with a pleading note in a limousine and goes off to commit suicide. The limo is stolen by thieves who dump the baby by a garbage can. Charlie the Tramp finds the baby and makes a home for him. Five years later Edna has become an opera star but does charity work for slum youngsters in hope of finding her boy. A doctor called by Edna discovers the note with the truth about the Kid and reports it to the authorities who come to take him away from Charlie. Before he arrives at the Orphan Asylum Charlie steals him back and takes him to a flophouse. The proprietor reads of a reward for the Kid and takes him to Edna. Charlie is later awakened by a kind policeman who reunites him with the Kid at Edna's mansion.

The classic stage hit gets the Hollywood treatment in the story of Elwood P. Dowd who makes friends with a spirit taking the form of a human-sized rabbit named Harvey that only he sees (and a few privileged others on occasion also.) After his sister tries to commit him to a mental institution, a comedy of errors ensues. Elwood and Harvey become the catalysts for a family mending its wounds and for romance blossoming in unexpected places.