December 13, 1941. One week after the Japanese attack on Pearl Harbor, and on a beach in northern California, a young woman, part of a 'Polar Bear' swim club, goes for a swim in the ocean alone and naked to only to find a Japanese submarine surfacing under her. She holds on to the periscope as it rises. The submarine is the I-19, and the sub commander Akiro Mitamura (Toshiro Mifune) with some of his crew arrive out on deck to survey the coastline. Accompanying them is a hard-line German naval captain named Wolfgang von Kleinschmidt (Christopher Lee). Commander Mitamura tells Von Kleinschmidt that he has crossed the Pacific Ocean with the intent to destroy something honorable on the U.S. West Coast since missing the other activities the Japanese Navy has done in the past week. The bickering German officer agrees and suggests that they travel south along the coast to a place called Hollywood located on their chart map and hope to evade detection. As the submarine prepares to submerge, a Japanese crew member looks up at the naked girl clinging to the periscope, and yells: "Hollywood! Hollywood!" At this point, the submarine crew realizes they have arrived where they intended to be, and the vessel submerges once again while the girl swims to safety.
Meanwhile in Los Angeles, dishwasher Wally Stephens (Bobby Di Cicco) tells his co-worker Dennis Desoto (Perry Lang) about his plans to enter a dance contest with his ex-girlfriend Betty Douglas (Dianne Kay), against her father's wishes. Tank crew chief Sgt. Frank Tree (Dan Aykroyd), along with his crew Private Foley (John Candy), Private Reese (Mickey Rourke), Private Hinshaw (Walter Olkewicz), and Corporal Sitarski (Treat Williams) are also at Wally's restaurant having breakfast. Sitarski takes an instant dislike to Wally after they meet when Wally serves him some coffee and a scuffle breaks out as Sitarski used to be a police officer before he was drafted and recognizes Wally who served time in a juvenile hall for auto theft. The fight is broken up by Sgt. Tree who takes his men out of the diner. Wally tries to persuade his boss to let them have the night off, but when his boss refuses and Willy keeps badgering him for the night off, both Wally and Dennis get fired from their jobs.
Across town, Betty Douglas, along with her friend Maxine (Wendie Jo Sperber) are in training as taxi girl dancer for an upcoming USO show at the local nightclub that has been taken over under the tutelage of USO liaison Mrs. Fitzroy. Wally and Dennis go to a local department store where Wally tries on a zoot suit to wear and seeing that he doesn't have the money to pay for it, he has Dennis sound an air raid siren in the store. In the resulting panic, Wally walks out of the department store wearing the zoot suit, while Dennis has a run-in with two attractive looking twin ladies whom he pretends to help them out.
Meanwhile somewhere in Death Valley California at 12 noon, Captain Wild Bill Kelso (John Belushi), a manic US Army Air Force officer lands his stolen Curtis P-40 fighter to refuel at a local gas station where he claims to the gas matron and the patrons that he's tracking a Japanese air squadron. But when he takes off after his plane is re-fulled, he accidentally blows up the gasoline station when he drops his lighted cigar.
Back in Los Angeles, the stuffy Major General Joseph Stilwell (Robert Stack) attempts to bring order to the hysteria and insanity gripping the region, while the general's new secretary Donna Stratten (Nancy Allen) as well as his assistant Captain Loomis Birkhead (Tim Matheson) have other ideas. Birkhead takes an instant liking to Donna and after learning from a colleague that Donna will only respond when she is aboard an airborne plane. At a nearby airbase, while General Stilwell gives a press conference about the impossibility of the Japanese bombing Los Angeles, Birkhead approaches Donna and takes her into the cockpit of a nearby B-17 bomber where he attempts to seduce her by simulating the plane taking off and flying. But Donna stops him by saying that it's not the same thing as being airborne and will only respond to his sexual advances in a real airborne plane. When Birkhead refuses to back away from her, she punches him, he falls back and accidentally releases a bomb door lever in which a large bomb drops out and rolls towards General Stilwell and the press conference and a panic ensues when the rolling bomb hits the stand and detonates. But all the people run to safety before it explodes.
At the Douglas family home on the coast, Wally arrives to meet with Betty in his newly stolen zoot suit to ask her out, but she tells him that the club has been taken over by the USO and is accessible only to servicemen. Wally is confronted by Mr. Douglas (Ned Beatty) and his wife Joan (Lorraine Gary), where it's revealed that they are still angry at Wally since he stole and previously destroyed their car during a date he had over one year ago with Betty which landed him in jail. Betty and Maxine fall into a pit which was dug by Mr. Douglas three obnoxious and bratty younger sons whom have also gotten caught up in the war hysteria. Soon after, Sgt. Tree and the tank crew arrive to deliver a large AA gun to the Douglas property, where Corporal Sitarski also spots Betty and takes a liking to her as well. However, Maxine also spots Sitarski and takes a liking to him too, which he declines the overweight lady's offer to attend the USO show with her. When Wally attempts to persuade Betty to accompany him to the dance anyway, Sitarski and the tank crew beat up Wally and throw him in the back of a passing garbage truck.
Nearby, at the home of Mr. Douglas neighbor Angelo Scioli (Lionel Stander), he has built an armored car against the protest of his nagging wife. Angelo, a former serviceman having joined the Civil Defense Force, persuades his friend Claude Crumn (Murray Hamilton) to take his friend Herbie (Eddie Deezen) to perch themselves atop a Ferris wheel at a local Santa Monica pier that Angelo owns to be air raid spotters. With rifles in hand as well as binoculars, and a telephone, Angelo puts them in on one of the Ferris wheel carts and moves the wheel to the top where Claude and Herbie will spend all day to look for approaching Japanese planes. Claude and Herbie do not get along at all because of Herbie's nagging and eccentricity, which makes matters worse when Herbie brings along a ventriquilist dummy with them where he also talks though the obnoxious and ratting dummy.
Meanwhile, Japanese submarine becomes lost trying to find Los Angeles when the ship's compass is broken. Commander Mitamura sends a landing party ashore where they capture a local timber merchant, Hollis "Holly" Wood (Slim Pickens). Despite the language barrier, since none of the Japanese crew, nor Von Kleinschmidt speak any English, Hollis knows that he's a prisoner, but he also slow to understand of their destination. Upon a search of his belongings, one Japanese crewman discovers a small compass in a box of Cracker Jacks that he has. But Wood grabs and swallows the small compass rather than let it fall into the hands of the Japanese. The Japanese spend several hours torturing him by forcing him to drink prune juice to make him defecate the compass. But Wood manages to turn the tables on his captors where he manages to escape and swim ashore.
In Los Angeles at nightfall, Wally arrives at the nightclub where he and several Latino zoot suit members are kept out of the nightclub by the military guards posted there. Just then, Sitarski arrives with Betty as his date and forces the guards to keep Wally and the rest of the zoot suits out. When Wally sees Dennis dressed as a sailor with the twin ladies at his side going into the USO club, he gets an idea. Wally knocks out a Shoreman Patrol officer, steals his uniform, and gains access to the nightclub where he tries to get Betty's attention by bringing her onto the dance floor. But a while dancing up a storm with Betty, gaining the attention of the MC as well as a Hollywood talent agent, a huge brawl erupts when Sitarski begins a fight with Wally, and the underwear clad Shore Patrol officer arrives which leads to a huge riot out on the streets.
When Captain Birkhead learns from General Stilwell about the renegade Colonel "Madman" Maddox (Warren Oates) isolating himself at the Barstow Air Force base and having airplanes, he gets the idea of going there with Donna and stealing a plane to fly and to seduce Donna. While Stilwell goes to the local theater to watch the feature film 'Dumbo', Birkhead and Donna drive to the Barstow airbase where they nearly get shot by the lunatic Maddox's solders whom he has told that every person approaching the base is a Japanese. But both Birkhead and Donna are disappointed when Colonel Maddox tells them that he has no bombers or fighter planes at the base, only an old C-47 transport plane, which Birkhead is happy to take on the ruse that he intends to fly over Los Angeles to spot any Japanese airplanes. But when Birkhead and Donna manage to take off, they realize that the plane they are flying in does not have a radio and they have no way of contacting anyone on the ground.
Shortly afterwards, Wild Bill arrives with his P-40 to refuel and learns from the insane Maddox about spoting Japanese planes all over the place. As Wild Bill prepares to take off again, Maddox asks him to fire the guns from his plane just to listen to the gunfire. Wild Bill does, and in so doing, shoots up part of the airbase's buildings, and also cutting the telephone lines, which now means that Maddox and his men have no way of contacting Civil Defense in Los Angeles to inform them about Birkhead and Donna's airborne plane, or of Wild Bill's plane as well.
Back in Los Angeles, the riot between the Army soldiers, Marines, sailors, and zoot suit guys is getting worse when Sgt Tree arrives in his tank with his crew, along with the latest addition, the Negro Private Ogden Johnson Jones (Frank McRae) to disrupt the riot and he gives a speech to the rioters about them turning against each other in this time of war. Just then, Los Angeles goes to Red Alert when the Civil Defense radar stations spot an "unknown aircraft" in the air. As Birkhead and Donna fly over Los Angeles just as he finally begins to seduce her, civil defense AA batteries open fire at their plane. The chaos continues as Wild Bill flies in and joins in the chase. Wild Bill manages to hit Birkhead and Donna's plane which crash lands into the La Brea Tar Pits area.
Meanwhile, Ward Douglas spots the Japanese submarine lurking off shore near his home and decides to use the AA gun left behind by Sgt. Tree to fire at it. On top of the Ferris wheel, Claude and Herbie also spot the submarine, but they accidentally drop their telephone to the ground and have no way to contact anyone. So they open fire on it with their rifles, keeping the Japanese crewmen pinned down and creating some panic for them. But Claude and Herbie accidentally shoot at Wild Bill's plane that flies overhead after mistaking it for a Japanese Zero fighter. Wild Bill's plane comes crashing to the ground at Hollywood Boulevard where he gets out and tells everyone about spotting a Japanese submarine off shore. Wally hears this and when Sgt. Tree accidentally hits his head, Wally, with Betty in tow, commandeers the tank and rides off to where Wild Bill told them about the sub's location. Left behind, Sitarski and Maxine hitch a ride with Wild Bill riding on a motorcycle and a chase through the streets begins with Wally riding the tank over a few cars and even shooting up a policeman's car after recognizing the officer as the man who arrested him. The tank crashes though a paint factory and then a turpentine factory.
Meanwhile, Ward Douglas begins firing at the Japanese submarine, but destroys his house in the progress with his bad aim. When Angelo sends one of Ward's sons to the pier to rescue Claude and Herbie stuck in the Ferris wheel, the brat accidentally turns on the entire lights for the amusement park..... illuminating it for the I-19 Japanese submarine. "Fire at the industrial structure!" yells Mitamuro. The I-19 begins shelling the amusement park, not realizing its little-use potential. The Ferris wheel is hit which rolls down the pier and into the water. Claude and Herbie (as well as the dummy) manage to swim ashore. But the nervous and bickering Captain von Kleinschmidt has had enough and wants to submerge, and he draws a gun on Mitamuro. But Mitamuro overpowers the German officer and throws him overboard. Kleinschmidt manages to swim ashore where he is later captured by Hollis Wood himself (the only U.S. "victory" of the movie).
When Wally and the tank crew arrive at the amusement park and drive onto the pier to open fire on the I-19. The Japanese sub turns toward the shore and fires a torpedo at the pier, destroying it and sending the tank and all its occupants into the water. Wild Bill drives his stolen motorbike onto the pier just as it collapses into the water. Deranged to the last, Wild Bill swims to the submarine and boards where he is captured by the crew. Commander Mitamuro, believing that his honorable mission has been accomplished, orders his crew to submerge and return home with their prisoner of war Wild Bill, who undaunted, he declares, "Turn this tub around! You're takin' me to Tokyo!"
The following morning on Sunday December 14, General Stilwell arrives at the devastated Douglas home where he is informed by Sgt. Tree, Wally, Betty, Claude, Herbie, Dennis, plus the entire tank crew about their harrowing experiences the night before. Also in custody with Stilwell's men is Birkhead and Donna, as well as Sitarski and Maxine, as well as the captive Captain von Kleinschmidt with his former captive-turned-captor Hollis Wood, and Colonel Maddox in a straightjacket on his way to the local funny farm. Ward delivers a short and inspirational speech to those present, vowing that Christmas will not be ruined; to punctuate his point, he nails a wreath to his front door, jarring the unstable house so that it collapses and slides into the ocean. The amused Stilwell mutters, "It's gonna be a long war," and walks away as everyone begins arguing and fighting in front of the foundations of the destroyed Douglas home.