Mark Watson, a recent college graduate, plans to go to law school at Harvard. Mark feels secure that his tuition and other fees for law school will be paid for by his wealthy parents, who had saved money for him. However, during a conversation with his father, he finds out that his parents have reneged and spent the money on a timeshare condominium in the Tropics. In retaliation, Mark hangs his father in effigy, using a Cabbage Patch doll he's dressed up to look like his dad.
Mark starts a frantic search for a scholarship program, however, his parent's wealth keeps him from qualifying. He finds one scholarship given to an academically exceptional student from the state of California each year. The only catch is that the student must be African-American to qualify. Mark talks to a friend of his who works as a pharmaceutical technician and obtains experimental tanning pills. Mark exceeds the suggested dosage and darkens his skin to appear black. The ruse works; Mark is able to fool his best friend, Gordon (who's also attending Harvard), and the scholarship committee.
Mark and Gordon arrive in Boston and rent an apartment from an obviously bigoted man whose daughter, Whitney, will also be living in the same house. She quickly comes on to Mark, saying that she feels the pain of his slave ancestry. She also invites him to her parent's house for dinner which results in an uncomfortable evening for Mark; Whitney's father glares at him thinking he's only looking for a white girlfriend. The rest of the family has their prejudicial opinions of him as well.
Mark and Gordon register for classes together, Mark breaking a minor oath with Gordon not to take criminal law - Mark sees that the professor, Banks, is also black and believes he can take advantage of the connection and will coast through the semester. However, Mark finds that Banks' class is much tougher than he thought and that Banks does not play favorites, no matter what race they are.
Mark also meets a woman named Sarah, also a law student and is immediately attracted to her. Sarah comes from a much poorer background than Mark and is working her way through law school. She is also a single mother and sees right through his flirting. Mark gradually wins her over, proving to her that he has the potential to excel academically.
One day, while driving through Cambridge, Mark is followed by a policeman, who has blatantly targeted him in a racist manner. Mark follows the traffic laws and controls very carefully until he's forced to swerve from someone opening a car door in front of him; he's immediately pulled over. When the officer asks to see his license, Mark remembers that the photo is of him as a white man and he tells the officer he lost it. He's arrested on the spot and thrown in jail where a group of disgruntled football fans beat him because their team lost to another team of mostly black players.
Mark's incarceration prevents him from writing an important term paper for Banks' class. He races to see Banks who refuses to grant him an extension on the due date. Mark tries to reason with the stolid professor, who seems unmoved by Mark's story about being held without formal charges and being beat up in jail. Banks grants him a few days to turn in his paper, which finds Mark spending his Thanksgiving vacation completing it. When he reads it, Banks is actually quite impressed.
Late in the semester, Mark, while studying with Sarah, finds out from her that she was the other applicant for the same scholarship he'd won in California. Mark is crushed, feeling guilty that he'd stolen her chance to attend Harvard with the grant. Gordon tells Mark to ignore his feelings; if he's exposed, he'll be ruined. Mark, en route to tell Sarah, is stopped by Banks who, seeing that Mark's classwork has shown exceptional improvement during the semester, offers him a seat on the university's student judiciary council when the council's only black student had fallen ill and stepped down. The conversation only makes Mark feel guiltier but he accepts.
Mark returns to his apartment and meets Gordon. He tries to tell his roommate about his guilt, but is dismissed. Gordon tells Mark to go into his room where he finds Whitney, mostly undressed and wanting to have sex with him. Mark refuses, knowing that Whitney's father hates him and tries to get her to leave. At that moment, Mark's parents make a surprise visit and Sarah shows up shortly after. Mark frantically tries to juggle talking to all of them but eventually reveals his identity. Sarah storms off, Mark's parents are shocked and Whitney is led off by her father after the superintendent of the building calls him and rats Mark out. Whitney's father also hits Mark in the stomach and the super happily serves him eviction papers. After everyone leaves, Mark and Gordon work on a plan to resolve everything.
The student judiciary convenes the next day. Gordon goes in ahead of Mark and offers an impassioned defense, saying that Mark feels great remorse for committing fraud and especially for cheating Sarah out of her rightful scholarship. Mark reveals himself to the council and to the astonishment of everyone in the room. He meets privately with Banks and tells him that he plans to apologize publicly and in writing to the university, allow his future wages to be garnished to pay back Sarah and also allow a future scholarship to be established in Sarah's name. He also asks that he be allowed to continue to attend law school. Banks tells Mark that he's learned something that other white students never could; what it feels like to be black and the subject of prejudice as a minority. Mark claims that he didn't learn such a thing because he could have bowed out at any time. Banks believes Mark has learned a great deal more than he thought.
Mark takes up a job much like the one that Sarah had, working in the university's cafeteria. He overhears a couple of bigoted students telling a racial joke within earshot of Sarah and punches them both, sending them flying. The movie ends with the two of them striking up a friendship again.