After the end of World War II, American Army posts are attempting to foster democracy throughout Okinawa. Col. Wainwright Purdy III, heads his post with short-sighted rigor, hewing closely to army-issued textbooks and strict military order. Hindering him in his exactitude is translator Sakini, a native Okinawan who artfully champions the culture and causes of the locals while appearing fully deferential to his boss. When Purdy learns that Capt. Fisby is being sent to his unit from the department of psychological warfare, he is thrilled to have another officer serving him, but upon arriving, Fisby proves himself to be a bumbling misfit who has been kicked out of every other military department. Regardless, Purdy remains cheerful as he sends Fisby to bring capitalism to the town of Tobiki, helped by Sakini and a military document on rebuilding villages. Sakini immediately frustrates Fisby by loading his jeep with an old woman, her daughter and grandchildren, their luggage and several goats. Although Fisby tries to take command, the Okinawans dupe him into stopping at several towns along their route so that they can visit relatives. When they finally arrive in Tobiki, Sakini listens to Fisby’s prepared speech and applauds it as very similar to the speech the Japanese officials made when they took over, then subsequently stole everything the villagers owned. Fisby tries to address the villagers, but is interrupted by the various presents they offer him, including a cricket cage, wooden shoes called gata and a cup, which the bestower explains will be filled with an “August moon,” signifying maturity and wisdom. Fisby then is inspired to create a souvenir business to bring profits to the town, and declares his intent to build a schoolhouse that, as Purdy has ordered, will be shaped like the Pentagon. Finally, he announces the appointment of a mayor, heads of agriculture and police, and a ladies’ league president, and the villagers nominate locals to the respective posts. Later, Sakini presents geisha Lotus Blossom as another gift for Fisby, but he assumes she is a prostitute and attempts to dismiss her. Sakini, however, informs him that she will lose face if he throws her out, so Fisby tries to ignore Lotus Blossom’s ministrations, despite the fact that she is aggressively undressing him even as he talks on the phone to Purdy. The next day, the village women, led by Miss Higa Jiga and interpreted by Sakini, gather to complain to Fisby that Lotus Blossom represents an “unfair market advantage,” and to demand similar perfumes, makeup and kimonos so they can compete with her. When they threaten to write to the U. S. government, an anxious Fisby succumbs, but puts his foot down when they demand geisha lessons. Later, when Lotus Blossom again attempts to wait on Fisby, he explodes in frustration, calling her work immoral, until Sakini explains that geishas merely comfort men with songs and sympathy. Relieved, Fisby announces that Lotus Blossom will teach all the women to be geishas. Soon after, however, the men come to him en masse asking for a teahouse to house the geishas, and although Fisby tries once again to refuse, he gives in after elderly Omura states that this is his last chance to live his life’s dream to enter a teahouse, thus freeing his soul for death. Over the next weeks, while the building is constructed quickly, Fisby leads the villagers in the production of their handmade crafts and increases the goat herd, but when Purdy hears no schoolhouse has been built, he commissions psychiatrist Capt. McLean to investigate. McLean is at first alarmed to discover that Fisby now wears gatas and a kimono and spends his days with Lotus Blossom, but upon hearing that Fisby’s plans for economic recovery include a garden, McLean, a secret organic farming enthusiast, grows overjoyed at the idea of testing his germination theories. Soon after, Fisby learns that none of the village souvenirs have sold to the Marines, who prefer the cheap, shoddy versions already available. Fisby is dejected until Sakini informs him that the villagers have gone to drink their sorrows away with homemade sweet-potato brandy, and upon testing the liquor on a goat, the captain declares brandy their newest commodity. Within days a still is built and the village is earning ever-increasing commissions, but Fisby’s greatest triumphs come with watching the sunset each night with Lotus Blossom, and finally capturing his very own cricket for his cricket cage. On the night the teahouse opens, Fisby and McLean are thrilled to discover its lavish beauty and the charm of the women inside, who dance and sing for them. To return the favor, the officers lead the village in a rendition of “Deep in the Heart of Texas,” but are interrupted by the arrival of Purdy, who reacts with horror, ordering the teahouse and and all of the stills demolished, and placing Fisby under technical arrest. Before leaving Tobiki, Fisby, devastated by what he sees as his ultimate failure, visits the ruined teahouse, where Lotus Blossom tearfully asks him to marry her. He responds, however, that she belongs in Okinawa, and promises to remember all that is beautiful about her “when the August moon rises.” Sakini also requests to leave with Fisby, who reminds him gently that he must stay to help the next officer in command. Sakini assures the captain that he has not failed, and Fisby responds that Tobiki has taught him that even when one feels conquered, one can retain a sense of independence and peace. Just then, a frantic Purdy informs them that the American press, upon hearing about Tobiki, have hailed it as an example of American ingenuity, and Congressmen are en route to inspect the village. Although the officers bemoan the stills’ destruction, Sakini explains that the villagers merely pretended to demolish the teahouse, and within minutes, both the stills and the teahouse have been restored. As Purdy, Fisby, Lotus Blossom and McLean enter the teahouse along with the happy villagers, Sakini concludes his “little story” with his wishes that an August moon will bring gentle sleep.