The film opens with a montage of images of Manhattan accompanied by George Gershwin's Rhapsody in Blue. TV writer Isaac Davis (Woody Allen
), is introduced as a man writing a book about his love for New York City. He is a twice-divorced 42-year-old dealing with the women in his life, who gives up his unfulfilling job as a comedy writer at a local TV station.
Isaac is currently dating Tracy (Mariel Hemingway
), a 17-year old high school girl attending Dalton. His best friend Yale Pollack (Michael Murphy
), is a college professor who is married to Emily (Anne Byrne Hoffman
). But Yale is having an affair with Mary Wilkie (Diane Keaton
); her ex-husband and former teacher Jeremiah (Wallace Shawn
) also appears now and then. Isaac's ex-wife, Jill (Meryl Streep
), is writing a confessional book about their marriage. Jill has also since come out of the closet as a lesbian and lives with her partner, Connie (Karen Ludwig), and they are both raising Isaac and Jill's 10-year-old son.
When Isaac meets Mary for the first time, her cultural snobbery rubs him the wrong way. Isaac runs into her again at an Equal Rights Amendment fund-raising event at the Museum of Modern Art hosted by Bella Abzug (who is played by herself) and accompanies her on a taxi ride home. They chat until sunrise in a sequence that culminates in the iconic shot of the Queensboro Bridge.
In spite of a growing attraction to Mary, Isaac continues his relationship with Tracy but emphasizes that theirs cannot be a serious relationship and encourages her to go to London to study acting. In another iconic scene, at Tracy's request, they go on a carriage ride through Central Park.
After Yale breaks up with Mary, he suggests that Isaac ask her out. Isaac does, always having felt that Tracy was too young for him. Isaac breaks up with Tracy, much to her dismay, and before long, Mary has virtually moved into his apartment.
Emily is curious about Isaac's new girlfriend, and after several meetings between the two couples, including one where Emily reads out portions of Jill's new book about her marriage with Isaac, she confronts Yale about Mary. As a result, Yale leaves Emily to resume his relationship with Mary who moves in with Yale after Emily moves out and breaks up with Isaac. A betrayed Isaac confronts Yale at the college where he teaches, and Yale argues that "he found Mary first". Isaac angrily responds by discussing Yale's extramarital affairs with Emily, but Yale had already told her that Isaac introduced Mary to him. In the denouement, Isaac lies on his sofa alone in his apartment, musing into a tape recorder about the things that make "life worth living". When he finds himself saying "Tracy's face", he sets down the microphone.
He leaves his apartment and sets out on foot for Tracy's. He arrives at the lobby of her family's apartment just as she is leaving for London. He says that she does not have to go and that he does not want "that thing about her that he likes" to change. She replies that the plans have already been made and reassures him that "not everybody gets corrupted" before saying "you have to have a little faith in people." He gives her a slight smile, (implying that they might get back together in the future) segueing into final shots of the skyline with some bars of Rhapsody in Blue playing again.
An instrumental version of "Embraceable You" plays over the credits.