Danny Zuko (JOHN TRAVOLTA) and Sandy Olsson (OLIVIA NEWTON-JOHN) had the perfect summer romance. They met at a seaside resort and spent July and August spooning to "Love is a Many Splendored Thing." But Labor Day comes all too soon for the pair, and they must go off to their separate schools, each mistakenly thinking that this is the end.

The first day at Rydell High brings Danny back for his senior year, and he returns to his cool, leather-jacketed image as the leader of the "T-Birds." His friends, Kenickie (JEFF CONWAY), Doody (BARRY PEARL), Sonny (MICHAEL TUCCI) and Putzie (KELLY WARD) are eager to hear how Danny spent his summer vacation. Meanwhile, Sandy has been transferred to Rydell and at the cafeteria there she is introduced to the "Pink Ladies," the T-Birds' female counterparts. Rizzo (STOCKARD CHANNING), Frenchy (DIDI CONN), Jan (JAMIE DONNELLY), and Marty (DINAH MANOFF) egg Sandy on to tell them about her summer romance.

Rydell High's faculty are somewhat less eager for their students to relive summer thrills. It's back-to-work time. Principal McGee (EVE ARDEN) welcomes back to school both students and faculty including Coach Calhoun (SID CAESAR), Automotive Shop teacher Mrs. Murdock (ALICE GHOSTLEY), and the dithering school secretary (DODY GOODMAN). She also announces that Rydell has been selected by National Bandstand Television as the representative American high school where their national dance-off will be telecast with Vince Fontaine (EDD BYRNES) hosting the event, and Johnny Casino and The Gamblers (SHA-NA-NA) appearing in person!

Following a pep rally (Sandy has joined the cheerleaders!), Danny and Sandy's paths cross again. And while Danny is truly happy about their potential reunion, his image forces him to play it very cool. Sandy feels rebuffed, and Frenchy tries to console her by inviting her to a slumber party. But it doesn't help when Rizzo mimics Sandy's wholesome qualities. Rizzo leaves the party and is off to Lover's Lane with Kenickie, while Sandy needs some time by herself.

The T-Birds decide to make Kenickie's car their automotive class project and to enter Kenickie in competition against the rival Scorpions at Thunder Road. They're off to plan the venture at the Frosty Palace where Danny runs into Sandy sharing a soda with Tom (LORENZO LAMAS), the school jock. Vi (JOAN BLONDELL), the fast-talking, heart-of-gold waitress, is at hand with a few wisecracks.

Finally, Sandy and Danny manage a moment together away from all the others, and he apologizes for his behavior. To impress her, he goes out for athletics - but proceeds to fail at everything and even takes a nasty spill on the track hurdles. Sandy rushes devotedly to our injured hero, and the pair renew their mutual devotion.

Things are not going as well for the rest of the kids. Rizzo and Kenickie have been fighting, and Frenchy - who had left Rydell for beauty school - is flunking shampoo-and-rinse. Her wish for guidance turns into a fantasy in which she is miraculously visited by Teen Angel (FRANKIE AVALON).

The National Bandstand Dance arrives, and while Danny and Sandy go together, Rizzo goes with Leo (DENNIS STEWART), the leader of the Scorpions, and Kenickie turns up with Cha Cha (ANNETTE CHARLES), Leo's girlfriend. Eventually, the aggressive Cha Cha manages to steal Danny from Sandy for the dance-off, and the couple wins first prize. A teary-eyed Sandy watches from the sidelines and learns from the other girls that Cha Cha has been one of Danny's former summer romances.

Later, Danny and Sandy make up at the drive-in when he asks her to be his steady, but the reconciliation is short-lived when he tries to take too much advantage of the moment. Meanwhile, matters are worse than ever for Rizzo, who is the talk of the drive-in when everyone discovers that she has missed her period.

Danny and Kenickie, neglected by their respective girls, devote themselves to Greased Lightning and Thunder Road and Danny finds himself racing in place of Kenickie at the last minute. Surviving an attempted sabotage, Greased Lightning wins the race and Sandy realizes that she cannot ignore her feelings for Danny. Rizzo reveals that she is not pregnant after all, and she and Kenickie kiss-and-make-up.

The final day of school arrives, and Danny shows up with his letterman's sweater (for track), while Sandy makes her appearance as a motorcycle-jacketed, T-Bird dream-girl. They acknowledge their mutual attraction for each other, and it's the ultimate, Technicolor happy ending for everyone.