On Christmas Eve, 1944, somewhere in Europe, two World War II U.S. Army soldiers, one a Broadway entertainer, Captain Bob Wallace (Bing Crosby), the other an aspiring entertainer, Private Phil Davis (Danny Kaye), perform for the 151st Division. But word has come down that their beloved commanding officer, Major General Thomas F. Waverly (Dean Jagger), is being relieved of command. He arrives for the end of the show and delivers an emotional farewell. The men give him a rousing send-off ("The Old Man").
After the war, Bob and Phil make it big in nightclubs, radio, and then on Broadway, eventually becoming successful producers. They mount their newest hit musical titled Playing Around. The same day they receive a letter from "Freckle-Faced Haynes, the dog-faced boy," their mess sergeant from the war, asking them to look at an act that his two sisters are doing.