The film opens at the beach (where else?), where Frankie (Frankie Avalon) and Dee Dee (Annette Funicello) are trying to find a particular radio station on their transistor radio. When they locate it, they sing the films title song, "Beach Blanket Bingo." During their performance, the opening credits are shown. A blimp flies overhead advertising Sugar Kanes first album. Then an airplane appears and Sugar (Linda Evans; Jackie Ward dubbed her singing), apparently skydives out of it. Once she hits the water, we learn the sky diver was Bonnie (Deborah Walley), one of the instructors from a sky diving school, who trades places with Sugar (i.e., it was a fake skydive set up by Sugars agent, Bullets (Paul Lynde), as a publicity stunt for her album). The surfer dudes paddle out on their boards to rescue Sugar. Frankie is credited with the rescue.
Eric von Zipper (Harvey Lembeck) and his Malibu Rat Pack motorcycle gang show up looking for Sugar. Eric is madly in love with her; he is there to rescue her from what he perceives to be trouble with the surfer dudes.
In the next scene, Donna Loren (herself) sings "It Only Hurts When I Cry." She is roasting a wiener in a house fireplace while she sings. (It appears these teenagers are living together. If it is a beach cottage, who is staying there? Just the girls? No one ever goes home. If it is a dorm, no one goes to class.) While Frankie and Dee Dee walk on the beach, they talk about skydiving; Frankie wants to try it. So does Dee Dee, but Frankie chauvinistically just wants her to watch him.
The next day, the whole gang, minus Bonehead (Jody McCrea), goes to the Big Drop Skydiving School. Big Drop (Don Rickles) introduces them to their instructors, Bonnie and Steve (John Ashley). According to Steve, the best way to learn is to watch, so he and Bonnie demonstrate.
Meanwhile back at the beach, Bonehead paddles out on his surfboard, falls off and almost drowns. He is saved by a mermaid who deposits him in the surf near the shore. Sugar happens by and rushes to help the semi-unconscious Bonehead. Her agent shows up just in time to claim Sugar saved Bonehead and to take a picture with his Polaroid camera. He invites Bonehead and his entire gang of surfers to dinner the following evening at Sugar's.
Eric von Zipper and South Dakota Slim (Timothy Carey; his film name is a takeoff on the famous pool player Minnesota Fats) are playing pool. One of Zipper's Rats brings him a newspaper with the headline, "Skydiving Singer Saves Surfer," which also has the photo Bullets had taken. Zipper orders his motorcycle gang to rescue Sugar from the surfers. He and his Rat Pack perform a silly little ditty titled "Follow Your Leader."
At Sugar's the next evening, Bullets introduces Sugar to perform a song ("New Love") from her new album, "Come Fall With Me" (a takeoff on the title of Frank Sinatra's "Come Fly With Me" LP). Dee Dee is jealous of Frankie's attention to Sugar. Instead of going to the party at Sugar's, Bonehead is out on his surfboard looking for the mermaid who rescued him. When he finds her, he learns her name is Lorelei (Marta Kristen). He asks her to come ashore so he can introduce her to his friends, but she can't. She does agree to meet him again the same time the following evening.
Dee Dee and Frankie walk on the beach again and sing the duet, "I Think You Think." At the end of the song, they kiss. The next day at the Skydiving School, Bonnie gets very friendly with Frankie, which makes Steve and Dee Dee jealous.
The gang finds Bonehead at the beach in a trance thinking about Lorelei. Frankie brings Sugar to try to get him out of his trance and it works. She agrees to go with him to the dance at the Pavilion that evening.
At the dance, Bullets arranges for Sugar to sing. Big Drop introduces gossip columnist, Earl Wilson (himself), who is in the audience and then performs a nightclub-type act where he insults everybody (the type of comedy for which Don Rickles is famous). Then he introduces Sugar, who, accompanied by the surf rock band, the Hondells (themselves), performs "Fly Boy." To Bullets' consternation, all the kids dance while she sings (he thinks they are taking attention away from his client). At Bonnie's urging, Steve cuts in to dance with Dee Dee, so she can dance with Frankie. When Bonehead and Sugar go for a walk on the beach, he keeps hearing the mermaid's song. When they wander into the surf, something bites Sugar's ankle (the mermaid). Bonehead suddenly remembers his date with Lorelei and rushes away leaving Sugar alone on the beach.
Back at the party, Big Drop introduces Frankie to sing "These Are the Good Times." Bonnie drools over him, which makes Steve furious. After his song, even though Bonnie objects, Steve tells Frankie that tomorrow will be his first jump. Despite Dee Dee's protestations, his jump goes smoothly.
When Bonehead finds Lorelei, she appears in a bikini that she made from some scraps she had found in the ocean. She tells him she has never met a human she likes in all of her three-hundred years of life. He finally convinces her to go out with him, but she makes him promise not to tell his friends that she's a mermaid. He promises and agrees to purchase whatever clothing she needs.
Dee Dee sings "I'll Never Change Him" during a time in the film when she is jealous about Frankie's attentions towards Sugar, but that scene is cut from some video editions. She sings from her bedroom in the cottage/dorm. At the end, she collapses on her bed. The next morning, it is Dee Dee's turn to skydive. Frankie does his best to talk her out of it, but she is determined. Bonnie is the pilot and Frankie tags along. After Dee Dee jumps, Bonnie puts the plane on autopilot and makes a pass at Frankie. When he refuses her advances, she tears her blouse and, once they land, accuses Frankie of trying to take advantage of her.
Lorelei dresses behind a rock at the beach in the clothes that Bonehead had purchased for her. They go to a dance where the Hondells play "Cycle Set." Lorelei can't dance to something so fast, so Bonehead, who is dressed in a suit and tie, requests a slow number. Bullets and Earl Wilson are surprised to see the surfers and their dates dancing to something so slow.
Suddenly, Eric von Zipper rides his motorcycle through the wall ending up in an aquarium. Since Sugar isnt there, they go to her place to kidnap her. She is so dense she thinks the kidnapping is another publicity stunt cooked up by her agent.
Lorelei must be back in the water before midnight, so she and Bonehead leave the dance. While she is changing back into a mermaid, she tells Bonehead that she loves him, but they don't belong together. She disappears back into the sea.
When Bullets finds Bonehead alone, he thinks Bonehead has drowned Sugar. Frankie and the gang show up just in time to convince Bullets not to call the police. They promise Sugar will be on the beach the next day. Bonehead hears the mermaid song again, so he leaves to find her. He finds her bikini on the beach and next to it, written in the sand, the words "von Zipper."
He now knows where Sugar is, so he finds her with Zipper. Bonehead knocks Zipper out, but South Dakota Slim knocks him out and takes Sugar.
Meanwhile, Dee Dee and Frankie are skydiving together. When they jump, their chutes don't open soon enough, so they end up in the ocean. Steve crashes his plane in the ocean to save Dee Dee. Lorelei shows up to help Frankie and gives him a medallion necklace to return to Bonehead. Then the surfers attack von Zipper and the Rat Pack looking for Sugar. They find out that South Dakota Slim has her. What follows is a silly chase scene involving the Rat Pack on their motorcycles and the surfers in their convertibles. South Dakota Slim has Sugar tied to a log in a saw mill; he is reenacting one of his favorite movie scenes from "The Perils of Pauline." He stops the log just before it reaches the saw. Two of the girls from von Zippers' Malibu Rats try to help her when Slim isn't looking. Frankie and Bonehead come crashing through the window of the sawmill to save Sugar; she gives Bonehead all the credit. Frankie gives Bonehead the necklace Lorelei had given him, which he puts around Sugar's neck.
Later, Dee Dee asks Frankie if there really was a mermaid. He answers, "Is there a moon? Is there a sky? Are there dreams?" They kiss as the audience sees a mermaid's tail disappear into the ocean. The word "Fin-ee" flashes on the screen to conclude the film.
Like the opening, Dee Dee, Frankie and the gang sing "Beach Blanket Bingo" during the final credits.