In 1962, Faber College freshmen Lawrence "Larry" Kroger and Kent Dorfman seek to join a fraternity. Finding themselves out of place at the prestigious Omega Theta Pi house's party, they visit the slovenly Delta Tau Chi house next door, where Kent is a "legacy" who cannot be rejected due to his brother Fred having been a member. John "Bluto" Blutarsky welcomes them (claiming they "need the dues"), and they meet other Deltas, including motorcyclist Daniel Simpson "D-Day" Day, chapter president Robert Hoover, ladies' man Eric "Otter" Stratton, and Otter's best friend Donald "Boon" Schoenstein, whose girlfriend Katy is constantly pressuring him to stop drinking with the Deltas and do something with his life. Larry and Kent are invited to pledge and given the fraternity names "Pinto" and "Flounder" respectively, by Bluto, Delta's sergeant-at-arms.
College Dean Vernon Wormer wants to remove the Deltas, who are already on probation, so he invokes his emergency authority and places the fraternity on "double-secret probation" due to various campus conduct violations and their abysmal academic standing. He directs the clean-cut, smug Omega president Greg Marmalard to find a way for him to remove the Deltas from campus. Various incidents, including the prank-related accidental death of a horse belonging to Omega member and Reserve Officers' Training Corps cadet commander Douglas C. Neidermeyer, and an attempt by Otter to date Marmalard's girlfriend, further increase the Dean's and the Omegas' animosity toward the Deltas.
Bluto and D-Day steal the answers to an upcoming test from the trash, not realizing that the Omegas have planted a fake set of answers for them to find. The Deltas fail the exam, and their grade-point averages fall so low that Wormer tells them he needs only one more incident to revoke their charter. To cheer themselves up, the Deltas organize a toga party and bring in Otis Day and the Knights to provide live music. Wormer's wife attends at Otter's invitation and has sex with him. Pinto hooks up with Clorette, a cashier he meets at the supermarket. They make out, but do not have sex because she passes out drunk. Pinto takes her home in a shopping cart and later discovers that she is the mayor's daughter.
Outraged by his wife's escapades and the mayor's threat of personal violence, Wormer organizes a Kangaroo Court and revokes Delta's charter. To take their minds off their troubles, Otter, Boon, Flounder, and Pinto go on a road trip. Otter picks up four young women from Emily Dickinson College as dates for himself and his Delta brothers by posing as Frank Lymon, the fiance of a college student who died in a recent explosion. They stop at a roadhouse bar where Day's band is performing, not realizing it has an exclusively African-American clientele. A couple of hulking patrons intimidate the Deltas and they quickly exit, smashing up Flounder's borrowed car in their haste and leaving their dates behind.
Marmalard and other Omegas lure Otter to a motel and beat him up, believing that Otter is having an affair with Marmalard's girlfriend, Mandy, not knowing that Mandy's best friend, Babs, actually made up the story because she wants Marmalard for herself. The Deltas' midterm grades are so poor that an ecstatic Wormer expels them all, having already notified their local draft boards that they are now eligible for military service. The news shocks Flounder so badly that he vomits on Wormer.
The Deltas are despondent, but Bluto rallies them with an impassioned, if historically inaccurate, speech ("Was it over when the Germans bombed Pearl Harbor? Hell no!"). They decide to get revenge on Wormer, the Omegas, and the college. They convert Flounder's damaged car into an armored vehicle and hide it inside a cake-shaped breakaway float and sneak into the annual homecoming parade. As they wreak havoc on the event, the futures of several of the student main characters are revealed using freeze-frame labels. Most of the Deltas become respectable professionals (with Bluto becoming a senator), while their adversaries suffer less fortunate outcomes.