Set in an animated world controlled by animals, the film starts with a young koala bear named Buster Moon (voice of Matthew McConaughey) going to see his very first musical production as a child. He is utterly enthralled by the show and quickly forms the dream to work in theater. As an adult, Buster has taken over the same theater where he saw that play. However, business hasn't been going so well, and the theater is in trouble. Buster's assistant Ms. Crawley (voice of Garth Jennings) informs him that angry stage crew workers are outside because their checks have bounced. Buster gets away on his bike as he rushes to the bank.
As Buster rides through town, we meet some of the other main characters - Johnny the gorilla (voice of Taron Egerton) is singing to himself in an alley, but he ducks when he sees some cops. He speaks into a radio to tell a group of guys to stay put, but his father, gang leader Big Daddy (voice of Peter Serafinowicz), and his goons break out and grab Johnny as they have just robbed some valuables. Next we meet Rosita the pig (voice of Reese Witherspoon), an overworked mother of 25 piglets and wife to Norman (voice of Nick Offerman), who doesn't notice just how much work she does, or that she likes to sing. Then we see porcupines Ash (voice of Scarlett Johansson) and her boyfriend Lance (voice of Beck Bennett), a punk rock duo with Lance singing lead. He doesn't like it when Ash steps in to sing on her own. Somewhere else across town we meet Meena the elephant (voice of Tori Kelly), singing to her grandfather (voice of Jay Pharaoh) for his birthday. He loves her voice and encourages her to get out and show others what she's got. Finally we meet Mike the mouse (voice of Seth MacFarlane), a sax player who is also greedy and selfish. He calls out a guy who gives him only a coin and forces him to give up whatever else he's got in his pockets.
Buster shows up at a restaurant to meet with his sheep friend Eddie (voice of John C. Reilly), whose family has invested a lot in Buster's theater, and they have not been happy with the results. Buster thinks he's come up with the answer to all his problems - he wants to hold a singing competition at his theater. Eddie isn't keen on the idea, and soon, he and Buster get kicked out of the restaurant when Buster takes out some sandwiches.
Buster has Ms. Crawley make flyers for the competition. Since he doesn't have a lot of money to offer as a reward, he tells her to advertise a $1,000 reward, with a bunch of junk stuffed into a treasure chest to make it look like it holds prize money. Ms. Crawley's glass eye pops out and bounces on the keyboard, causing the ad to say the reward is $100,000. She prints out hundreds of flyers, but she stands next to the fan, causing it to blow every single flyer into town. Many animals find the flyers and think they have a shot at something big.
The next day, Buster is surprised to see a whole line of animals going down the block outside the theater. Over a hundred animals, including Johnny, Rosita, Mike, and Ash all audition. Meena goes to audition, but she has a severe case of stage fright and she bails. When all is said and done, Buster selects Johnny, Mike, and Ash (without Lance) as the solo acts, while Rosita is paired up with another pig named Gunter (voice of Nick Kroll). Buster then learns that Ms. Crawley advertised a $100,000 reward, and he panics while trying to maintain the illusion that there is a lot of money in that chest.
The animals start rehearsing for the show. Buster gives them a list of songs they can go with. Johnny learns he has to play the piano, and Ash is none too pleased to be given a list of cheesy pop songs since she is a teenage girl. Meena returns after having been pressured by her grandfather to re-audition. She brings Buster a cake and finds him as he is trying to connect an extension cord to a nearby building after the electric company shuts off the power. Since Meena is too nervous to ask for a second chance, Buster assumes she wants to be part of the stage crew. She accepts, and Meena returns home to find that her mother (voice of Leslie Jones) told all their friends that Meena got in the show.
A bank rep named Judith goes by the theater to tell Buster to get his accounts sorted or else the bank will take the theater. Buster approaches Eddie and asks if he can get his grandmother, legendary performer Nana Noodleman (voice of Jennifer Saunders), to give the theater some funding. Eddie is nervous about talking to Nana, but Buster tags along to convince her to invest in the theater. Nana thinks Buster ruined the theater with the shows he's put on, but he never gives up with trying to change her mind.
Outside of rehearsals, the other animals deal with issues of their own. Ash wants to write an original song, but Lance isn't supportive of her making her own music. Ash later finds Lance working with another girl porcupine named Becky, prompting Ash to kick Lance out of her apartment.
Mike becomes so confident that he will win the reward that he takes out a loan so he can buy a fancy car to impress a lady mouse. They enter a nightclub where Mike plays against three big bears. One of the bears sees that Mike cheated, and he chases after the mouse, only to lose him as he escapes the club.
During rehearsal, Johnny is supposed to be a getaway driver for Big Daddy and his gang as they are trying to steal some gold. Johnny tries to take his spare time to go to rehearsal, but when he needs to get back, he gets stuck in a traffic jam as a result of a car accident that he caused when rushing back to the theater. Big Daddy and his boys are arrested. Johnny later visits his dad in jail and admits that he was rehearsing for the show and that he would rather be a singer than to be in his dad's gang. Big Daddy is furious and he disowns Johnny.
At night, Johnny sneaks into the theater and tries to steal the treasure chest, thinking he can use the supposed money in there to bail out his dad. However, he stops when he sees his own audition sheet and sees that Buster wrote him down as a natural-born singer. Ms. Crawley appears, and Johnny plays it off as though he just needed more piano lessons. She happily sits down to help him.
Buster gets Meena to help him organize a set-up for a preview that he will put on for Nana. They get water from a water tower and use krill to come up with a lights display. Nana arrives and is impressed by the show so far, but the three bears find Mike in the theater and threaten to eat him unless he gives them their money. Mike tells the bears that the money is in the treasure chest. The main bear smashes the chest, revealing all of Buster's junk and no money. His ruse is exposed to the other animals, but things get worse when the water tank cracks, causing the whole theater to get flooded and eventually completely destroyed.
The bank now owns what's left of the theater. Buster sinks into despair and hopelessness. The animal cast heads over to Eddie's home where Buster is staying to try and cheer him up, but he has given up and declares himself a failure.
Buster and Ms. Crawley start a car wash business like his father used to do. Eddie steps in to help him out. A while later, Buster overhears Meena singing "Hallelujah" by herself where the theater used to be. Impressed and reinvigorated by her singing, Buster comes up with a new plan.
Buster calls the animals so that the show may go on. Mike bails when he learns that it's no longer a competition and there won't be any prize money. They set up a stage in the middle of the theater ruins and get some of the animals' families to come by, except it's just Rosita and Meena's families that show up. The show begins with Rosita and Gunter performing "Shake It Off" with a dance in sparkly outfits. Rosita's kids are all excited, and Norman is so astonished that he runs up on the stage to kiss his wife.
Next, Johnny plays the piano and sings "I'm Still Standing". Big Daddy watches from prison and is amazed by his son's singing. He immediately breaks out to go see Johnny, leading to a citywide manhunt for Big Daddy.
Ash gets on to play her original song, but Judith comes by to unplug the music and tell everyone to leave. Ash continues to play the song, "Set It All Free", which even Lance is watching from home. Ash gets so into it that she accidentally shoots out quills into the audience.
Mike sees the show on TV and sets out to prove to viewers that he's better than the rest. He rushes to the theater and puts on a soulful rendition of "My Way", right as the police helicopters fly overhead, nearly pulling Mike into the sky. He manages to finish the song, but unfortunately, the bears see the show and head to the theater to get him. Meanwhile, Big Daddy has made it to the theater and sees Johnny. He hugs his son and apologizes for what he said to him, then praises his musical talent. Big Daddy then willingly goes back to prison.
Meena is the last performer. She is very nervous until Buster convinces her to get out there. She starts a slow and shy version of "Don't You Worry About a Thing" before belting out her voice, which even leaves Mike with his jaw on the floor. The bears show up and snatch him, nearly eating him until the lady mouse shows up to save Mike.
Nana, having been in the audience the whole time, sees Buster and applauds with the rest of the audience. She finally gives Buster her funding so that they can re-purchase the theater and rebuild it into an even bigger and better theater.
The film ends with Buster and all his new friends gathered for the theater's grand reopening.