The film opens at St. Anne's Academy, a California Catholic school in 1968, where a young girl named Deloris Wilson is scolded for wisecracking and disobeying rules. The setting then changes to the present day, where Deloris Van Cartier is a lounge singer working in a casino called The Moonlight Lounge, located in Reno, Nevada run by her boyfriend, Vince LaRocca, a mobster. After Deloris witnesses Vince executing a chauffeur, Vince orders his men Joey and Willy to kill her too. Deloris flees Vince's casino to the local police station where Lieutenant Eddie Souther suggests she testify against Vince if he can be arrested and tried, but for now, she should go into witness protection until the time comes.
Deloris is taken to St. Katherine's Roman Catholic Church in a seedy run down neighborhood of San Francisco, where Souther suggests she disguise herself as a nun. Both Deloris and the Reverend Mother object, but are convinced by Souther and Monsignor O'Hara to go ahead with it. Deloris becomes a nun and is given the name "Sister Mary Clarence". Mary Clarence objects to following the simple lives of the nunnery, but comes to befriend several of the nuns, including the forever jolly Sister Mary Patrick, quiet and meek Sister Mary Robert, and the elderly deadpan Sister Mary Lazarus. After sneaking into a nearby bar, Mary Clarence is punished by Reverend Mother and put into the choir, which she has seen to be dreadful. The choir nuns, having heard "Sister Mary Clarence" has a background in music, elect her to take over as choir director, which she accepts, and she rearranges them to make them better singers. At the Sunday Mass, the choir sings perfectly before going into a gospel and rock and roll-infused performance of "Hail Holy Queen".
The Reverend Mother is infuriated, but Monsignor O'Hara is thrilled as the music brought people in off the streets. The choir cleans up the neighborhood and wows church-goers with their music, with Souther eventually attending a performance of "My Guy" (appropriately rewritten as "My God"). Eventually, O'Hara announces to the choir that Pope John Paul II is to visit the church to see the choir himself. Reverend Mother decides to hand in her resignation since her authority has been unintentionally undermined, but Mary Clarence offers to leave in her stead, to which the Reverend Mother disagrees. Detective Tate, a police officer on Vince's payroll, finds out where Deloris is and contacts Vince, who sends Joey and Willy out to grab her. Souther realizes Tate's betrayal, has him arrested, and flies to San Francisco to warn Mary Clarence, but she is kidnapped by Vince's men.
The nuns, led by the Reverend Mother risk their lives by going to Reno to save Mary Clarence. Meanwhile, she escapes Vince and his men, leading to a chase around the casino until the nuns find her and try to sneak out. Vince, Joey and Willy confront the nuns, but are unable to bring themselves to shoot Deloris while she is in a nun's habit, and Souther bursts in, shoots Vince in the arm, and has the men arrested. The film ends with the choir, led by Deloris, singing before the Pope "I Will Follow Him", earning a round of applause that is led by the Pope and Reverend Mother. The end credits reveals Deloris' secret life as a nun was sold to the media and has become a sensation.