The patriarch of the family, Grandpa Vanderhof, is an eccentric old man who hunts snakes and has never paid his income tax. Penelope "Penny" Vanderhof Sycamore is his daughter (a writer of sex-filled melodrama plays), who is married to Paul Sycamore, a tinkerer who manufactures fireworks in the basement with the help of his assistant Mr. De Pinna. (He used to be the family's iceman.) One of Paul and Penny's two daughters is Essie Sycamore Carmichael, a childish candymaker who dreams of being a ballerina (but in reality is terrible at dancing). Essie is married to Ed Carmichael, a vibraphone player who lives with them and helps distribute Essie's candies. Ed is an amateur printer who prints anything that sounds good to him. Paul and Penny's other daughter Alice Sycamore is quite obviously the only "normal" family member. She has an office job and is sometimes embarrassed by the eccentricities of her family, yet deep down, she still loves them. In addition, the Vanderhof/Sycamore clan employs a black maid Rheba, who is engaged to Donald, also black.
The real action begins when Essie tells Grandpa Vanderhof that some letters arrived for him from the "United States Government," but that she misplaced them. Shortly afterwards, Alice comes home and announces that she has fallen in love with a young man with whom she works, Tony Kirby, the son of the company's executive. Before going upstairs to change, Alice tells her family that he will be coming over shortly to take her on a date. The entire family is still joyfully discussing her boyfriend when the doorbell rings. Penny answers the door and greets the man standing there, thinking he must be Tony, but only upon forcing the stranger to shake hands with the entire family do they realize that he is not Alice's boyfriend: he is a tax investigator.
His name is Wilbur C. Henderson (played in the film by Charles Lane), and he is investigating Grandpa for his evasion of income tax. When Henderson asks Grandpa why he owed twenty-four years of back income tax, Grandpa states he never believed in it, and that the government wouldn't know what to do with the money if he did pay it. Henderson becomes infuriated by Grandpa's answers to his questions. Henderson spots Grandpa's snakes, and runs out of the house in fear, but not before promising Grandpa that he will hear, one way or another, from the United States government.
Shortly afterwards, Mr. Boris Kolenkhov, Essie's extremely Russian ballet instructor, arrives and makes chitchat with the family, complaining of how his friend, the Grand Duchess Olga Katrina, was thrown out of Russia after the Revolution. In the middle of Essie's lesson, the real Tony Kirby arrives, and Alice is nervous that her eccentric family will scare him away, so she promptly leaves with him on their date.
In the course of their conversation, which is interrupted by Essie and Ed (who come home from a Ginger Rogers/Fred Astaire movie) at one point, Tony wins Alice over, and they agree to get married. Paul comes up from the basement and tells Alice to watch his latest firework masterpiece, and she lovingly says: "It's the most beautiful red fire in the world..."
Ed returns from distributing Essie's candies with news that he is being followed by someone. When Mr. DePinna looks out the window, no one is there. Ed resumes printing leaflets. Paul and Mr. De Pinna are downstairs the whole time making fireworks. Penny recalls her days as a painter, and immediately remembers that she never finished her painting of Mr. De Pinna as a discus thrower. She calls Mr. De Pinna up from the basement and orders him into costume so she may finish her masterpiece.
At the same time, Mr. Kolenkhov arrives and begins Essie's ballet lesson. Ed provides accompanying music on the vibraphone. Rheba runs in and out of the kitchen cleaning. Grandpa takes this time to practice darts and feed the snakes. In the midst of all this hullabaloo, Tony appears in the doorway with Mr. Kirby and Mrs. Kirby. Before them is the entire eccentric spectacle. Apparently, Tony has forgotten for which night dinner was planned, and Alice is incredibly embarrassed.
Penny tells Alice not to worry, and that they can manage a nice dinner easily. She gives a list of things to Donald and tells him to run down to the store. Grandpa tries desperately to keep the party normal and under control for the sake of his granddaughter. Mr. Kirby reveals himself to be a very straightlaced fat-cat, who owns yachts so that he may relax and raises orchids as a hobby. Grandpa thinks that Mr. Kirby is not a truly happy man, but Mr. Kirby insists that he is just fine with his plot in life. Mr. Kirby investigates a child's model and finds it is Paul's "hobby." Mr. Kolenkhov brings up that the Roman hobby was wrestling, and demonstrates on Mr. Kirby (to much ado.) Mrs. Kirby tells them that her true passion is spiritualism, to which Penny replies, "We all know that's a fake." To say it concisely, the conversation is a fiasco.
To pass the time, Penny suggests they play a free association game. Alice knows what is coming and immediately tries to quash the suggestions, but Penny shrugs her off and instructs everyone to write down the first thing that "pops" into their heads after she says certain words.
Penny offers the words "potato, bathroom, lust, honeymoon, and sex." Penny reads Mr. Kirby's list first, with reactions of, respectively: "steak, toothpaste, unlawful, trip, male." Mrs. Kirby's list, however, causes much controversy. "Starch" is her response to potatoes, which is not that bad, but her response for "bathroom" is "Mr. Kirby," and she explains how rude it is that he hogs the bathroom in the morning. Her response to "lust" is "human," claiming it is a perfectly human emotion. Mr. Kirby disagrees, saying "it is depraved." "Honeymoon"'s reply is "dull," as Mrs. Kirby explains that there was "nothing to do at night." The shocker comes when Mrs. Kirby says her reply to "sex" was "Wall Street." She at first claims she doesn't know what she meant by it, but once provoked she yells at Mr. Kirby "You're always talking about Wall Street, even when--" and then stops.
The entire family knows what has happened, and Mr. Kirby and Mrs. Kirby are so embarrassed that they order Tony home with them immediately. Tony refuses to go. Alice agrees with Tony's parents, but Tony insists they stay. Grandpa offers his opinion, but before anyone can do anything, federal agents overrun the house. The head agent tells them that Ed's pamphlets, on which he prints anything that "sounds nice," read "DYNAMITE THE CAPITOL," "DYNAMITE THE WHITE HOUSE," "DYNAMITE THE SUPREME COURT." Grandpa tries to explain to the head agent, but he informs them they are all under arrest.
The agents discover enormous amounts of gunpowder in the basement and think it is for dynamiting Washington, so Paul and Mr. De Pinna rush down to save the fireworks. Meanwhile, the agents bring down Gay Wellington from upstairs, and she begins singing drunkenly. Alice and Tony cling to each other while the family argues with the agents. The fireworks go off. Act II ends with the entire house in an uproar.
Alice has decided to leave home, with no immediate plans to return. She was truly in love with Tony, and her family ruined her chances of ever falling in love, and for doing that, she can never forgive them. Penny keeps trying to tell Alice to stay, but Grandpa knows that Alice cannot be swayed.
Tony arrives and tries to convince Alice not to leave home. Alice knows she loves him, but just can't get herself to stay.
Soon, Mr. Kolenkhov appears with the Grand Duchess Olga Katrina, in all of her former glory. The grand duchess soon goes into the kitchen to cook the dinner for the family.
Mr. Kirby arrives to pick up Tony and to settle his score with Grandpa Vanderhof. Soon, Mr. Kirby and Tony get into a heated argument, the pinnacle of which finds Tony screaming that he purposely brought his family on the wrong night. He explains that he wanted each family to see each as they really were, that Alice's idea of a planned party was ridiculous. Grandpa Vanderhof jumps in and, with the family's help, persuades Kirby that his life is not as it should be. Grandpa accuses Mr. Kirby of wasting his life by doing things he does not want to do. Mr. Kirby puts up a big fight, with several valid points... but eventually succumbs. He is changed, and accepts the Vanderhof view of life.
The play comes to a conclusion as the family, along with Tony and Mr. Kirby, sit down to dinner with the Grand Duchess. Grandpa says a touching prayer, and then they jump into the food.
The play was the basis for the 1938 Academy Award winning film directed by Frank Capra. The film cast included James Stewart, Jean Arthur, Lionel Barrymore, Edward Arnold, Spring Byington, Ann Miller, Dub Taylor, Charles Lane, Mischa Auer, Eddie 'Rochester' Anderson, and the uncredited Arthur Murray.