Karen Wright (Audrey Hepburn) and Martha Dobie (Shirley MacLaine) are just beginning to succeed in their struggle to make the Wright-Dobie School for Girls a going concern. Karen believes she will soon be able to marry Joe Cardin (James Garner). However, Karen has to discipline Mary Tilford (Karen Balkin). Mary always wants her own way and, worse, is a congenital liar. Mary complains to her grandmother Mrs. Tilford (Fay Bainter). To lend strength to her complaint, Mary repeats part of a conversation that she overheard, but barely understood--a conversation in which Martha's aunt Lily (Miriam Hopkins) accused Martha of having an unnatural attachment to Karen. Mrs. Tilford is horrified and spreads the word to the parents of the other girls--with disastrous results.