In Edwardian London, Professor Henry Higgins, an arrogant, irascible teacher of elocution, believes that the accent and tone of one's voice determines a person's prospects in society. He boasts to a new acquaintance, Colonel Hugh Pickering, himself an expert in phonetics, that he could teach any woman to speak so "properly" that he could pass her off as a duchess at an embassy ball. Higgins selects as an example a young flower seller from the slums, Eliza Doolittle, who has a strong Cockney accent. Eliza's ambition is to work in a flower shop, but her thick accent makes her unsuitable. Pickering offers to pay for her elocution lessons.

Eliza's father, Alfred P. Doolittle, a dustman, shows up three days later, ostensibly to protect his daughter's virtue, but in reality simply to extract some money from Higgins, and is bought off with £5. Higgins is impressed by the man's honesty, his natural gift for language, and especially his brazen lack of morals. Higgins recommends Doolittle to a wealthy American who is interested in morality. Eliza goes through many forms of speech training, such as speaking with marbles in her mouth, enduring Higgins' harsh approach to teaching and his treatment of her personally. She makes little progress, but just as she, Higgins, and Pickering are about to give up, Eliza finally "gets it"; she instantly begins to speak with an impeccable upper class accent.

As a test, Higgins takes her to Ascot Racecourse, where she makes a good impression with her stilted, but genteel manners, only to shock everyone by a sudden and vulgar lapse into Cockney while encouraging a horse to win a race. Higgins, who dislikes the pretentiousness of the upper class, partly conceals a grin behind his hand. Eliza poses as a mysterious lady at an embassy ball and even dances with a foreign prince. At the ball is Zoltan Karpathy, a Hungarian phonetics expert trained by Higgins. After a brief conversation with Eliza, he certifies that she is not only Hungarian, but of royal blood.

After all the effort she has put in however, Eliza is given hardly any credit; all the praise going to Higgins. This, and his callous treatment towards her afterwards, especially his indifference to her future, causes her to walk out on him, leaving him mystified by her ingratitude. Accompanied by Freddy Eynsford-Hill, a young man she met at Ascot and who is charmed by her, Eliza returns to her old life, but finds that she no longer fits in as she is a polite lady now. She meets her father, who has been left a large fortune by the wealthy American Higgins had sent him to and is resigned to marrying Eliza's stepmother. Alfred feels that Higgins has ruined him, since he is now bound by morals and responsibility. Eventually, Eliza ends up visiting Higgins' mother, who is incensed at her son's behavior.

Higgins finds Eliza the next day and attempts to talk her into coming back to him. During a testy exchange, Higgins is angered when Eliza announces that she is going to marry Freddy and become Karpathy's assistant. Higgins explodes and Eliza is satisfied that she has had her "own back." Higgins has to admit that rather than being "a millstone around my neck... now you're a tower of strength, a consort battleship. I like you this way." Eliza leaves, saying they will never meet again. After an argument with his mother - in which he asserts that he does not need Eliza or anyone else - Higgins makes his way home, stubbornly predicting that Eliza will come crawling back. However, he comes to the realization that he has "grown accustomed to her face." Then, to his surprise, Eliza reappears in Higgins' study: she knows now that he deeply cares for her after all.