On Christmas Eve in New York, the performing trio of singer Jim Hardy, dancer Ted Hanover, and singer and dancer Lila Dixon, split up when Lila chooses to marry Ted and continue performing rather than marry fiancé Jim, who plans to quit performing to run a farm. After a year of struggling with farm work in Connecticut, and several weeks of recuperation in a sanitarium, Jim decides on a less exhausting occupation and opens Holiday Inn, a country-style inn which features live entertainment and is only open on holidays. As a way of stopping Linda Mason, an ambitious performer who works selling flowers, from pestering him, Ted's agent, Danny Reed, sends Linda to Connecticut to audition for Jim. The two are attracted to each other and Jim offers her a job. On New Year's Eve, after Lila jilts Ted so that she can marry a Texas millionaire, Ted travels to Holiday Inn to drown his sorrows. He arrives drunk, but immediately engages in a dance with Linda. The patrons all think that she is Ted's new dance partner and applaud as Ted collapses in a drunken stupor. In the morning, Ted cannot remember much about Linda but becomes determined to find her and make her his new dance partner. Jim does everything he can to thwart Ted's plans because he has fallen in love with Linda. Although Linda performs on Lincoln's birthday at the inn, Ted does not recognize her because Jim makes her wear blackface make-up for her number. Ted does find her on Valentine's Day, however, and insists that they perform together for Washington's birthday. Ted mercilessly pursues Linda to draw her away from Jim, and stays on at the inn through the next few holidays. When Jim overhears that Ted has brought two Hollywood film producers to see the Fourth of July show, he secretly asks his driver, Gus, who is picking Linda up at the train station, to make sure that she does not arrive in time for the show, and then invites Lila, who did not marry after all, to perform. Gus drives the car into a pond, and when Linda hitches a ride on the road, she is picked up by Lila. Unaware of Linda's identity, Lila tells Linda her story, and on the pretense of taking a shortcut, Linda makes sure Lila drives into the pond as well. Both women show up too late for the performance, but the producers offer to buy the idea of Holiday Inn to use as the basis of a musical. Having earned the enmity of all his friends because of his deception, Jim reluctantly agrees to the idea, but insists on remaining in Connecticut to write the music while Ted and Linda go to Hollywood. On Thanksgiving Day, when a lonely and dispirited Jim reads that Ted and Linda are engaged, his concerned housekeeper, Mamie, convinces him not to give up and to pursue Linda honestly. Jim arrives in Hollywood on Christmas Eve, just before Ted and Linda's wedding. Despite Ted and Danny's efforts, he manages to sneak onto a soundstage which has been set up like his Holiday Inn, and as Linda performs "White Christmas," the first song they ever sang together, Jim sings along and the two are happily reunited. Finally, on New Year's Eve, the two couples, Jim and Linda and Ted and Lila, perform together at Holiday Inn.