At the New York School for Performing Arts, a group of teens and young adults audition and are admitted to achieve their goal of 'fame'. Opening at the auditions, seven very different young people are chosen to be accepted into the academy. They include: drama student Doris Finsecker (Maureen Teefy) who longs to be a famous actress on stage and screen; drama student Ralph 'Raul' Garcia (Barry Miller) who longs to have a career on stage; multi-talented Coco Hernandez (Irene Cara) who longs to have a career in drama, music, and dance; Leroy Johnson (Gene Anthony Ray) a troubled youth from a rough crime-ridden neighborhood who longs to be a dancer; Montgomery MacNeil (Paul McCrane) another drama student who longs to be a world-famous actor; Bruno Martelli (Lee Curreri) a music student seeking to make it big; and Lisa Monroe (Laura Dean) another dance student.
During the auditions, several of the teachers are also introduced. They include the music teacher Mr. Shorofsky (Albert Hague); English and reading teacher Mrs. Sherwood (Anne Meara); dance and ballet teacher Miss Berg (Joanna Merlin); drama teacher Mr. Farrel (Jim Moody); and dance teacher and former dancer Ms. Grant (Debbie Allen).
The movie then spans four years among the students and teachers lives told as four seperate consecutive 30-35 minute episodes each spaning over several months.
The new students learn on the first day of classes that academics are weighted equally with performance. Leroy clashes with Mrs. Sherwood in English class over his reluntance to learn every new topic.
The naive and innocent Doris is overwhelmed by the energy and spontaneity in the lunchroom and flees, meeting Montgomery. Doris and Montgomery become friends, and Doris worries that she's too ordinary against the colorful personalities of the other students.
As the year progresses, Coco tries to convince Bruno to book performing gigs with her. During a night on the town, Coco tells Bruno of her belief that she's "doing my last dance on this dark little planet" so it has to be spectacular.
Leroy and Mrs. Sherwood continue to clash over Leroy's refusal to do homework. It is eventually revealed to the viewers that Leroy is illiterate and is also too ashamed to admit it to anyone.
Meanwhile, Bruno and his working-class taxi driver father (Eddie Barth) argue over Bruno's reluctance to play his music publicly over his stage fright.
One day in ballet class, Miss Berg warns Lisa she is not working hard enough.
Graduating senior Michael (Boyd Gaines) wins a prestigious scholarship and before he leaves the academy, he tells Doris that the William Morris Agency wants to send him out for auditions for television pilots.
Hilary van Doren (Antonia Franceschi) joins the school, and she and Coco clash over Leroy over both wanting to date both of them. Hilary seduces Leroy and learns his secret of being unable to read.
Meanwhile, Bruno and Mr. Shorofsky debate the merits of traditional orchestras versus synthesized instruments.
One day in drama class, as an acting exercise, Mr. Farrell has the students to try to divulge a painful memory. Ralph tells of learning about the death of Freddie Prinze. Doris relates her humiliation at being forced by her demanding and pushy stage actress mother to sing at a child's birthday party. Montgomery discusses discovering his homosexuality, and in the process comes out to the whole school, for which he is teased by Ralph wearing 'The Rocky Horror Picture Show' style drag.
Meanwhile, Bruno's father continues to try to encourage his son to play his music and he plays Bruno's own music (the title song 'Fame') outside the school, inspiring the student body to dance in the streets and Coco to sing the song.
A few weeks later, Miss Berg drops Lisa from the dance program. Lisa, after seemingly considering suicide by jumping in front of a moving subway train over her fear of being expelled from the school, instead drops her dance clothes on the subway tracks and declares: "Fuck it! If I can't dance, I'll change to the drama department."
A few months later, Ralph and Doris discover their mutual attraction, but their growing intimacy leaves Montgomery feeling excluded.
Meanwhile, Hilary brings Leroy home to shock her conservative father and stepmother over her dating this tough punk.
One evening, Ralph's young sister is attacked by a junkie and Ralph lashes out at his insanely religious mother's attempts to comfort the severly injured child by taking her to the local Catholic church, instead of to a hospital.
Doris also begins to question her Jewish upbringing, changing her name to "Dominique DuPont." One evening, she and Ralph attend a screening of 'The Rocky Horror Picture Show' at the 8th Street Playhouse, and during the "Time Warp" Doris rips off her blouse and joins the stage show. She becomes giddy the next day as she realizes that as an actress she can put on any personality she wants, but is sobered upon running into Michael, whom is not working, but struggling as an actor and waiting tables at a local restaurant.
Another few months later, Ralph follows in the footsteps of his idol Freddie Prinze and performs stand-up comedy at Catch a Rising Star and garners some initial success. He falls into a hard-party lifestyle and strains his relationship with Doris. Given a prime spot at a comedy club, he bombs after clashing with both Doris and Montgomery over his new lifestyle. Disgusted with himself, he believes his career is over, but Montgomery comforts him by telling him that his failing is part of the entertainment business.
Meanwhile, Hilary is offered a spot with the San Francisco Ballet. But her chances might be jepordized when she learns that she is pregnant by Leroy. Desperate to take the spot, Hilary has an abortion.
Elsewhere, Coco is approached in a diner by a sleazy guy (Steve Inwood) claiming to be a director. She goes to his apartment for a "screen test" and he forces her to undress in front of the camera.
Leroy is offered a spot in Alvin Ailey's dance company, but to be accepted he must graduate as he continues to struggle with his illiteracy. He finds out that Mrs. Sherwood has not passed his final exam and becomes very angry. He finds Mrs. Sherwood at a local hospital while she's sitting outside her husband's hospital room while he is recovering from an apparent heart attack. Leroy lashes out at her for failing him. She lashes back and, chagrined, he comforts her over her personal situation with her spouse.
In the final scene, at the graduation cerimony, the student body all comes together to perform the finalé, "I Sing the Body Electric". The opening lines are sung by Lisa, Coco, and Montgomery.