Les Anderson (Corey Haim) is eagerly looking forward to getting his driver's license, freedom for a teenager who takes the bus to school, and a way to possibly pick up girls.
One whom Les has his eye on, is Mercedes Lane (Heather Graham). However, she seems to already have a boyfriend, who drives a Ferrari.
A few days later, Les is picked up by his friends Dean (Corey Feldman) and Charles (Michael Manasseri), and go to a party. While there, the trio see Mercedes getting into a heated argument with her boyfriend. Attempting to get out of the argument, she tells her boyfriend that she's going to go out with Les next Saturday.
The next day, Les is picked up from school by his Dad (Richard Masur), who is driving their Grandpa's Cadillac (as Grandpa has taken Dad's BMW, not wanting to drive his own Caddy over long distances). Les is at first embarrassed, but grows excited when his Dad explains that he thought he can drive the Cadillac for a little bit (with his Dad supervising of course!).
Reaching an upcoming corner, Les sees Mercedes wakling down the street, and begs his Dad to let him drive the car by himself, to impress her. Les' Dad gives in, but Les' plan to just drive Mercedes home takes another turn, when she tells how she's going across town to see a friend. Wanting to impress her, Les drives her there.
On his way back home, Les comes across his Dad who is very upset that Les broke his word.
The next day, Les and his twin sister Natalie (Nina Siemaszko) both take the driver's test via computer. Though Natalie finishes quickly, Les becomes flustered, and eventually fails. Angered, he 'boxes' the monitor, causing all the computers to shut down.
As DMV attempts to recover the data, they allow Les to take a driving test, feeling that since his twin sister scored highly, he should also be good once the data is recovered.
Natalie also takes a driving test, wherein the instructor is very calming. Les is given an instructor, who only has one stipulation: if Les can keep the cup of coffee he has from spilling, he passes.
Les manages to make it through, and gets his license...but seconds later, the instructor in the computer room tells that after recovering the results, Les has failed, and tears up his license in front of him!
Les comes home to an enthusiastic family, and lies to them, telling that he's 'a free man.' However, when his Mom (Carol Kane) does the laundry some time afterwards, she finds the 'Failed Test' paper in his pants pocket, and soon the entire family knows. Les' father even grounds Les for 2 weeks for lying to the family.
Les' friends even try to get him to come out due to getting his license, but he lies, claiming he has other things to do. Later on that evening, Les gets a call from Mercedes, asking if he's still going to take her out. Les lies, claiming he's on his way (after making sure his parents are sound asleep!).
Les manages to get his Grandpa's Cadillac out of the garage, and picks up Mercedes. They at first attempt to go to a club, but Les is refused entrance by the bouncer. Mercedes does get in, but upon seeing her boyfriend with another woman, quickly grabs a nearby bottle of champagne, and returns outside. However, Les' problems are increased when a tow-truck begins to tow away the Caddy. Les manages to get the car untowed, but ends up paying over all the money he has.
Mercedes then requests that they go to a lookout point high above the city. However, during her time there, she ends up finishing off the bottle of champagne. She ends up dancing on the hood of the car, and caving in the hood when she causes Les and her to fall on it! Getting her back in the car, she ends up knocked out from her drinking escapade.
Les then goes over to Dean's place, where Dean manages to take care of the dented hood, by banging it back into proper condition. Both Dean and Charles are eager to see Les' license, and claim that they should head to a place called Atomic Avenue. Les tries to convince them not to go there, but is coerced into it.
After a harrowing incident on the freeway, the group ends up at Shakey's where they attempt to sober up Mercedes, but at the insistence of Dean, put her in the car trunk, and decide to head off to Atomic Avenue, where Dean is sure they can meet some more girls.
They arrive, and the place seems exciting, but Charles accidentally ends up denting the door of a guy's Pontiac GTO. The man then attempts to smash the group's windshield with a crowbar, causing Les to quickly take off!
They end up almost being found out when going by a protest area (where Les' sister and her boyfriend are!), before getting pulled over at a Police checkpoint. Les gives over his school bus pass, but the situation almost takes a turn for the worse when the officer finds a sleeping Mercedes in the car trunk!
However, the police checkpoint is dismantled when word comes that the protest has become a riot! The boys then decide to head home, but are sidelined when a drunken driver gets into the Cadillac, and drives off! Luckily, they managed to get Mercedes out of the trunk before this, and all pile into the drunk's VW Bug.
Les' night gets worse as the driver veers all over the road, scratching up the car, and causing severe damage to it! Les manages to get into the car and stops it, right before it almost flies into a pit.
Les manages to get his friends home, and get Mercedes back to her place, who claims she had a nice time, and kisses him!
Les gets the car into the garage, just as his parents come downstairs, as his pregnant mother has just gone into labor! Les' Dad is about to give Les a huge lecture, when the cries of his wife cause him to stop. Needing someone to drive, Dad relents and allows Les back behind the wheel.
Arriving at a cross street, the family is thrown into turmoil when the forward drive on the car breaks, with the only option, to go in reverse. At the insistence of his family, Les throws the car in reverse, and manages to get his family to the hospital.
Les' Dad is impressed by his son's driving skills...but the moment is ruined when a giant I-beam from a nearby construction site, crashes onto the Cadillac.
Some time later, Grandpa comes back for his car. The family is ready for him to get angry, but are surprised when he starts laughing. Grandpa claims he had some problems driving Dad's car, and if on cue, a tow truck pulls up, with Dad's BMW smashed up!
Dad then attempts to push the broken car on Les, when Mercedes pulls up in her car.
Les responds to his Dad with, "I already have a Mercedes," hopping in her car, and driving off down the road with her.