The film opens with a montage of images of Manhattan and other parts of New York City accompanied by George Gershwin’s Rhapsody in Blue, with Isaac Davis (Woody Allen) narrating drafts of an introduction to a book about a man who loves the city. Isaac is a twice-divorced, 42-year-old television comedy writer who quits his unfulfilling job. He is dating Tracy (Mariel Hemingway), a 17-year-old girl attending the Dalton School. His best friend, college professor Yale Pollack (Michael Murphy), married to Emily (Anne Byrne), is having an affair with Mary Wilkie (Diane Keaton). Mary’s ex-husband and former teacher, Jeremiah (Wallace Shawn), also appears, and Isaac’s ex-wife Jill Davis (Meryl Streep) is writing a confessional book about their marriage. Jill has also since come out as a lesbian and lives with her partner, Connie (Karen Ludwig).
When Isaac meets Mary, her cultural snobbery rubs him the wrong way. Isaac runs into her again at an Equal Rights Amendment fund-raising event at the Museum of Modern Art hosted by Bella Abzug (playing herself) and accompanies her on a cab ride home. They chat until sunrise in a sequence that culminates in the iconic shot of the Queensboro Bridge. In spite of a growing attraction to Mary, Isaac continues his relationship with Tracy but emphasizes that theirs cannot be a serious relationship and encourages her to go to London to study acting. In another iconic scene, at Tracy’s request, they go on a carriage ride through Central Park.
After Yale breaks up with Mary, he suggests that Isaac ask her out. Isaac does, always having felt that Tracy was too young for him. Isaac breaks up with Tracy, much to her dismay, and before long, Mary has virtually moved into his apartment. Emily is curious about Isaac’s new girlfriend. The two couples enjoy a day out and upon walking down a street Isaac spots Jill’s new book Marriage, Divorce, and Selfhood. Emily proceeds to read parts of the book aloud, including passages about a ménage à trois Isaac had with Jill and another woman, and an incident where Isaac attempted to run Connie over, much to Mary and Yale’s amusement. Thoroughly humiliated, Isaac confronts Jill, who responds stoically and mentions a film rights deal she has acquired. Upon returning home, Isaac learns from Mary that she is returning to Yale and wants to break up. A betrayed Isaac confronts Yale at the college where he teaches, and Yale argues that he found Mary first. Isaac discusses Yale’s extramarital affairs with Emily and learns that Yale told her Isaac introduced Mary to him.
In the dénouement, Isaac lies on his sofa, musing into a tape recorder about the things that make “life worth living”. When he finds himself saying “Tracy’s face”, he sets down the microphone. Unable to reach her by phone, he sets out for Tracy’s on foot. He arrives at her family’s apartment building just as she is leaving for London. He asks her not to go and says he does not want “that thing about [her] that [he] like[s]” to change. She replies that the plans have already been made and reassures him that “not everybody gets corrupted” before saying “you have to have a little faith in people”. He gives her a slight smile, with a final coy look to the camera then segueing into final shots of the skyline with some bars of Rhapsody in Blue playing again. An instrumental version of “Embraceable You” plays over the credits.