Anthony "Tony" Manero (John Travolta) is a 19-year old Italian American living in the Bay Ridge neighborhood of Brooklyn in New York City. Tony lives at home with his overbearing and abusive, uneducated, working-class parents (Val Bisoglio and Julie Bovasso), and works a dead-end job in a small hardware store by day since graduating from high school. But every Saturday night, Tony is "king of the dance floor" at 2001 Odyssey, a local disco club. Tony has four close friends that he goes out with to the disco: Joey (Joseph Cali); Double J (Paul Pape); Gus (Bruce Ornstein); and the diminutive Bobby C. (Barry Miller). Another informal member of their group is Annette (Donna Pescow), a neighborhood girl who longs for a more permanent and physical relationship with Tony.
One plot device in the story is the Verrazano-Narrows Bridge, which connects from Long Island to Staten Island, on which the friends ritually stop to clown around, but is particularly symbolic to Tony as an escape to a better life on the other side, in more suburban Staten Island.
One day, Tony agrees to be Annette's partner in an upcoming dance contest at 2001 Odyssey, but her happiness is short-lived when Tony becomes infatuated with another girl dancing at the club, an older woman named Stephanie Mangano (Karen Lynn Gorney). Stephanie coldly rejects Tony's advances, but eventually agrees to be his partner in the competition, nothing more.
Elsewhere, Tony's older brother, Frank Jr. (Martin Shakar), who was the pride of the family since becoming a priest in the Catholic Church, brings despair to their parents when he quits the priesthood. In contrast to his cold relationship with his distant and neglectful parents as well has his non-English speaking grandmother and rambunctious younger sister, Tony shares a warm relationship with Frank Jr., but feels vindicated, no longer being the black sheep of the family.
While on his way home from the grocery store, Gus is attacked by a Hispanic gang and is hospitalized, and tells the guys it was the Barracudas.
Meanwhile, the horny and irresponsible Bobby C. has been trying to get out of his relationship with his devoutly Catholic girlfriend, Pauline, who is pregnant with his child. Facing pressure from his family and others to marry her, Bobby asks former priest Frank Jr., if the Pope would grant him dispensation for an abortion. But when Frank tells him this would be highly unlikely, Bobby's feelings of despair deepen. Bobby C also lets Tony borrow his 1964 Chevrolet Impala to help move Stephanie from Bay Ridge to Manhattan, with Tony promising to call him later that night, but Tony does not.
Eventually, the group gets their revenge on the Barracudas by crashing Bobby C's car into their hangout. Tony, Double J and Joey get out to fight, but Bobby C. takes off when a gang member tries to attack him in the car. When the guys visit Gus in the hospital, they are angry when he tells them that he may have fingered the wrong gang.
Later, Tony and Stephanie dance at the competition and end up winning first prize. However, Tony believes that a Puerto Rican couple performed better, and the judges' decision was based on racism. He gives them the first prize trophy, and leaves with Stephanie in tow. Once outside in the car, he gives into his carnal urges and tries to rape Stephanie, resulting in her fleeing from him.
Tony's friends come to the car along with a drunken and stoned Annette, who Joey says has agreed to have sex with everyone. Tony tries to lead her away, but is subdued by Double J and Joey, and sullenly leaves with the group in the car. Double J and Joey take turns with Annette, who begins to sober up during what has become a rape scene. Bobby C. pulls the car over on the Verrazano-Narrows Bridge for the usual cable-climbing antics. Typically abstaining, Bobby gets out and performs more dangerous stunts than the rest. Realizing that he is acting recklessly, Tony tries to get him to come down. But upset at his lonely life, his situation with Pauline, and a broken promise from Tony earlier, Bobby issues a tirade at Tony's lack of care before slipping and falling to his death more than two hundred feet in the water below.
Disgusted and disillusioned by his friends, his life and his family, Tony spends the rest of the night riding the subway. As morning comes, he finally shows up at Stephanie's apartment in Manhattan, apologizing for his bad behavior. He tells her that he plans to leave Brooklyn and come to Manhattan to try and start a new life. Tony and Stephanie salvage their relationship and agree to be friends, sharing a tender moment as the credits roll.