The film opens with a montage of images of Manhattan accompanied by George Gershwin's Rhapsody in Blue. While attempting to begin a new novel, 42-year-old Isaac (Woody Allen), a successful television comedy writer, struggles to describe his main character's view of Manhattan and its inhabitants.
At Elaine's restaurant, Isaac has dinner with his 17-year-old girlfriend, Tracy (Mariel Hemmingway), and his friends, the married couple, Yale (Michael Murphy) and Emily (Anne Byrne). The four discuss luck, art, courage, and, after Tracy leaves for the restroom, the remaining three discuss her age. Isaac tells his friends that his ex-wife, Jill, who recently left him for another woman, is writing a book about the breakup of their marriage. This troubles Isaac, because the work will reveal personal details about him and their relationship. Leaving early because Tracy has a high school exam the next morning, the group walks along the sidewalk. As Emily and Tracy follow a few steps behind Yale and Isaac, Yale reveals to Isaac that he is having an affair.
One day, Isaac confronts Jill (Meryl Streep) on the street and begs her not to publish the book and expresses concern about their young son, Willy, who is now being raised by Jill and her life partner Connie (Karen Ludwig).
At his apartment in the evening, Isaac and Tracy discuss her past relationships and she tells Isaac that she is in love with him. He is less committal and suggests that she not be so quick to jump to that conclusion. She questions his feelings for her but he in turn argues that at her age she should not be limited to just him.
At an art exhibit, Isaac and Tracy encounter Yale and his mistress, Mary (Diane Keaton). The four talk about art and philosophy, about which Isaac and Mary, a writer, disagree vehemently. Afterwards, Tracy and Isaac are food shopping and he, still angry, complains about Mary.
At the television studio where he works, Isaac becomes frustrated with the results of his material and quits his job. Meeting with Yale afterward, Isaac worries about his newfound unemployment and his financial burdens, which include alimony, child support, and costly rent. Talk also turns to the book Isaac is working on.
That evening, at a Museum of Modern Art fundraiser, Isaac runs into Mary. They talk briefly with some of her friends and then the two leave together. While walking, they talk about Isaac quitting his job, his writing, her friends, and her past marriage. After picking up Mary's dog, the two take it for a walk, eventually sitting on a bench together watching the sun come up over the Queensboro Bridge.
That morning, Isaac phones Yale and tells him about his evening with Mary and attempts to discern how committed Yale is to her, without admitting that he has become interested in her. Later, Yale and Mary talk about their affair and what direction it is heading.
Isaac picks up his son from Jill's house and again pleads with her to not publish the book. She reminds him of his past erratic behavior, including the time he tried to run over her new lover.
A day or so later, Mary calls Yale to see if he wants to go out. When he declines, she calls Isaac. They decide to meet, and as they walk together a violent thunderstorm breaks out, causing them to seek shelter in a planetarium. As they walk through the darkness, their relationship develops and Mary confides her frustration with Yale, who is not ready to break up with Emily.
Later at dinner, Tracy tells Isaac about an opportunity she has to study acting in London. Although she is reluctant to leave him, he encourages her, saying how good it would be for her.
At Bloomingdales one day, Mary and Yale converse about her growing anxiety over their affair. At the same time, Tracy helps Isaac move to a cheaper apartment. On his first night there, they are in bed together, and Isaac complains about the intrusive sounds in the new building, and is similarly bothered by the brown water from the tap.
Tracy relates her concerns about their future together, but he remains noncommittal, claiming he wants the best for her. Mary and Yale agree that they have to stop seeing each other, and Yale tells Isaac that he should pursue Mary. Isaac is flattered by the suggestion, but also hesitant. When Isaac and Mary decide to see a movie, they argue again.
Back at her home, Isaac tries to kiss Mary, but she resists and instead they discuss their budding relationship. Mary and Isaac spend a day together, visiting a museum and having dinner, eventually spending the night with each other.
Sometime later on one afternoon, Isaac meets Tracy outside her school, where she gives him a harmonica as a gift. Isaac again talks about Tracy's age and questions her understanding of love. He says they should not see each other any longer and that he has fallen in love with someone else. Tracy is quite upset, realizing that his earlier expressions of concern for her were really masking his ambivalence. However, Isaac feels the decision should have been expected.
In the country together, Mary and Isaac talk about the positive path their relationship is taking, Mary going so far as to say that she could imagine having kids with Isaac.
Sometime later, Yale invites Isaac and Mary to spend an evening with him and Emily. The result is an awkward evening for the four of them.
While shopping one day, Isaac and Mary run into Jeremiah, her previous romantic partner. Based on Mary's description of him as a great lover, Jeremiah is physically not what Isaac imagined.
One night together, Isaac tells Mary she is wasting her talent writing novelizations of movies. Their talk is interrupted by a phone call from Yale, who wants to meet Mary. She refuses, but tells Isaac the call was from someone offering free dance lessons. Later, Isaac tells Emily that publishers have responded favorably to the first four chapters of his book.
While shopping in the country, Isaac and Mary, and Yale and Emily notice and purchase a copy of Jill's book. Yale reads aloud from it to everyone's amusement, except, of course, Isaac, who is offended by what he hears.
Back in the city, Isaac confronts Jill, who reveals to him that there has already been interest in making the book into a movie. Isaac arrives home to tell Mary about the encounter, but she tells him that she is still in love with Yale, that she has been seeing him again, and that he is actually moving out so that they can be together. Isaac is shocked and promptly rushes to meet Yale at the university where he teaches. Isaac angrily chides his friend and questions his actions.
Days later, Emily tells Isaac that she knew about the affair and, unaware of Yale and Mary's previous attachment, says she thinks their breakup was due to Isaac introducing Mary to Yale. Isaac tells Emily that he misses Tracy, noting the pleasant times they spent together.
At home alone, Isaac records ideas for a book. In doing so, he contemplates what makes life worthwhile and this line of thought eventually causes him to think about Tracy. He plays briefly on the harmonica then tries to call her. Abruptly, he races out the door and runs several blocks and catches Tracy just before she leaves for London. Isaac tells her about his feelings. He says he made a mistake and does not want her to go and that he loves her. However, it is too late, as her arrangements have already been made. She reassures him that she will only be gone for six months, and then they can be together, concluding that he just needs to have a little faith in people (implying that they might get back together again someday, when she is of legal age).
An instrumental version of "Embraceable You" plays over the end credits.