Mild-mannered Elwood P. Dowd leaves the house for the day with his invisible six-foot-three rabbit friend, Harvey, and is secretly watched by his sister, Veta Louise Simmons, and her daughter Myrtle Mae. As Veta is planning a party that day to launch Myrtle Mae into society, she is determined to keep her peculiar and chronically inebriated brother away from the house and, to that end, telephones her friend, Judge Omar Gaffney. Gaffney immediately dispatches an employee, who slips on a newly washed floor and is knocked unconscious. Meanwhile, Elwood arrives with Harvey at Charlie's, his favorite bar. Learning of Veta's party, Elwood returns home, and by genially introducing Harvey to the women attending the party, sends them all scurrying for the door. Myrtle Mae sees her hopes for a husband leaving with them, and in desperation, Veta decides to commit Elwood to a sanitarium. On hearing Veta's story, Miss Kelly, the nurse, assigns Elwood to a room, but when a confused and upset Veta then tries to explain Elwood's case to Dr. Lyman Sanderson, he commits her instead. Sanderson then scolds Kelly and sends her to apologize to Elwood, who unsuccessfully attempts to introduce Harvey to the preoccupied staff. As he is leaving the sanitarium, Elwood encounters Mrs. Chumley, the wife of the sanitarium head, and invites her to join him for a drink. When she declines, he asks her to send Harvey to the bar if she sees him inside and identifies his friend as a "pooka." When Mrs. Chumley later reports this conversation to her husband, the doctors realize their mistake. Consulting her dictionary, Mrs. Chumley learns that a pooka is a fairy spirit that takes the form of a very large animal. In the meantime, an extremely upset Veta returns home. While she recovers upstairs, Marvin Wilson, the sanitarium attendant, comes looking for Elwood. Myrtle Mae is immediately attracted to him, and he returns her interest. Chumley then arrives and dispatches Wilson to the train station. Just as Veta announces that she is going to sue Chumley, Elwood phones from Charlie's looking for Harvey, and Chumley hurries to the bar. Back at the sanitarium, Wilson encounters the fired Sanderson, and when they realize that Chumley is overdue, Wilson, Sanderson and Kelly all hurry to Charlie's to look for him. There, Elwood explains that after a few drinks, Harvey and Chumley left for another bar. Wilson goes after him, leaving Kelly and Sanderson with Elwood. Elwood's gentle flirting with Kelly sparks Sanderson's interest in the nurse, who has long loved him. Elwood tells them he spends his days drinking with Harvey and talking to people in bars and relates the story of how he met Harvey. Wilson returns without Chumley but with the police, who convey Elwood to the sanitarium. Later, Chumley returns to the sanitarium and asks to speak privately with Elwood. After Chumley acknowledges Harvey's existence, he tells Elwood about Veta's plan to commit him. Soon afterward, Gaffney, Myrtle Mae and Veta arrive. Chumley rehires Sanderson, who then offers Elwood a serum that will make him shoulder his responsibilities and eliminate Harvey. Elwood declines, but when Veta explains how hard it has been to live with Harvey, he agrees to take the shot. While Elwood is in the examining room with Sanderson, Veta's taxi driver comes in to ask for his payment and describes the changes in people who have taken Sanderson's injection. At the thought that Elwood might stop enjoying life and become crabby, Veta stops Sanderson. Aware that Myrtle Mae is in love with Wilson, Elwood invites him to dinner. He then leaves with Harvey, but when Chumley begs him to leave Harvey behind, Elwood reluctantly agrees. Just as he passes the sanitarium gates, however, Harvey rejoins Elwood.