In 1958, during their summer vacation, Danny Zuko (John Travolta) and Sandy Olsson (Olivia Newton-John) meet at a beach and begin to fall in love. Instead of returning to Australia at summer's end, however, Sandy enrolls at Rydell High School as a foreign-exchange student, where Danny is a student. So is Sandy's new friend Frenchy (Didi Conn), a member of the schoolgirl clique "The Pink Ladies". Danny is the leader of the boys' gang, "The T-Birds". Kenickie, second-in-command of the T-Birds (and Danny's best friend), encourages Danny to tell them about his holiday experiences, while the Pink Ladies likewise persuade Sandy. This results in "Summer Nights.
Sandy joins the Rydell cheerleaders. The Pink Ladies decide to reunite Danny and Sandy, but Danny wants to protect his cool image, and his behavior towards Sandy causes her to storm off in tears.
Frenchy attempts to cheer Sandy up by inviting her to a sleepover at her house with the rest of the gang, but Rizzo soon gets fed up with Sandy's goody-two-shoes behavior. Frenchy announces that she is dropping out of Rydell and going to beauty school. Rizzo lampoons Sandy, singing the sarcastic "Look at Me, I'm Sandra Dee". After the party splits up, Sandy decides that she still loves Danny, in spite of everything, and sings "Hopelessly Devoted to You", a poignant love song that was added for the movie and was a big hit as a single. Rizzo's and Kenickie's passionate back-seat love-making is interrupted when the leader of a rival gang, Leo (Dennis Cleveland Stewart) of The Scorpions, and his girlfriend, Cha Cha DiGregorio (Annette Charles), damage Kenickie's car.
Whilst repairing the car, the T-Birds fantasize about what it will look like after a paint job, singing "Greased Lightning".
Danny meets Sandy at the Frosty Palace, and tries to apologize for his actions. When he sees that Sandy is sharing a soda with a jock, Danny decides that he's going to join the jocks to impress her. After disastrous performances in basketball, wrestling, and baseball - where he keeps losing his temper when he loses - he finally finds his ideal sport in cross country, until the sight of Sandy distracts him and he falls. Sandy comes to see if Danny is all right, and they are seemingly reconciled.
Danny attempts to go to the Frosty Palace with Sandy so that they can be alone and not worry about ruining his image in front of his friends. But the T-Birds and Pink Ladies are already there, and Danny finds it hard to charm Sandy without looking like a sissy in front of his friends.
Later, Danny takes Sandy to the school's dance, During the dance-off, Rizzo leaves in a huff, seeing Kenickie dancing with Cha Cha, and Danny and Sandy are one of the few still in the dance-off. But soon, Sonny pulls Sandy away from Danny, and Cha Cha starts dancing with Danny. Sandy realizes that Cha Cha was one of Danny's past girlfriends — and a much better dancer. Sandy leaves the gym upset
Later, Danny takes Sandy to a drive-in movie, apologizes for leaving her, and gives her his class ring. Inside the drive-in toilets, Rizzo tells Marty that her unprotected sex with Kenickie has come back to haunt her — she has missed a period. One of the T-Birds overhears and gets the story, leading to a chain effect that makes it common knowledge. When Kenickie asks Rizzo why she didn't tell him about it, she lies out of anger and tells him it isn't his. Back in the car, Danny starts trying to make out with Sandy. She raises a ruckus, throws back his ring (which she calls a "piece of tin"), and leaves. Danny laments losing Sandy again, and reveals the true extent of his feelings for her in the song "Sandy" — he is helpless without her.
Because of a mishap before a race in the Los Angeles River, Danny races Leo in of Kenickie's place while Sandy sits on the hill watching. While she is happy to see Danny win the neck-and-neck race, she has misgivings about her own image, reflected in the song "Look at Me, I'm Sandra Dee (Reprise)". As the T-Birds and Pink Ladies celebrate with Danny, Sandy asks Frenchy's help in winning Danny's heart.
On the last day of the school carnival, Danny has followed through on his track jock plans and arrives in a preppy letter sweater. However, Sandy arrives in full greaser-girl apparel — no more goody-two-shoes. Danny falls at her feet and the two reunite, singing the upbeat "You're the One That I Want" (another song added for the movie, and a hit single before the movie even came out). Rizzo and Kenickie get together after Rizzo has screamed from the Ferris wheel that she is not pregnant after all, and everyone sings the big finale, "We Go Together." Sandy and Danny fly off in a car and disappear into the sky.
