In 1943, in the small town of Pinedale, Jeff Cairns has had a run of bad luck in trying to keep the family farm going after the death of his father. Jeff is secretly in love with Jenny, a waitress at a local diner, but she finds him too humble and lacking in assertiveness. Because her boss, Mr. Agrippa, needs a carpenter, in short supply due to the war, Jenny suggests Henry Pecket, an elderly eccentric who has built a sailboat in his back yard, 300 miles from the nearest body of water, and sails with Jeff's little sister Nella on imaginary voyages. When Jeff, Nella and her dog Tipsy go to eat at the diner, Nella tells Jeff that Jenny will never marry him because he is a farmer. Jeff then announces that he has joined the Navy and intends to send Nella to live with a cousin. When Jeff puts her on a bus to her cousin's the next day, Nella tells him that if he is ever in trouble he should head for a special island with white sand and palm trees where she will be able to find him. Later, Jenny sees Jeff off at the railroad station and realizing her true feelings, asks him to come back to her. Some time after having offered his boat to the Navy, Henry receives a series of misinformed bureaucratic responses. Meanwhile, Jenny receives a letter from Jeff saying that he is enjoying Navy life. One day, Henry discovers Nella and Tipsy at the boat and learns that they have run away and want to stay with him. Henry tells Jenny about Nella's arrival and when she comes to see her, Nella shows her a telegram she has received from the government explaining that Jeff is missing in action. Nella tells Jenny not to worry though, because Jeff will simply go to the special island and wait for them to find him. Henry's landlady, Sara March, after whom he has named his boat, is advised of Jenny's nocturnal visit by a nosy neighbor and, in retaliation, sells Henry's boat to the diner's owner for use as a hamburger stand. That same night, during a heavy rainstorm, Jenny, Nella and Tipsy come to spend the night on the boat as they have been evicted from where they were staying. The intensity of the storm increases, causing the boat, which is on wheels ready to be moved, to break away from its moorings and sail away through the town's streets. The next morning, all four find themselves marooned in a hay field where they meet Howard Williams, a former pharmacist's mate who was given a medical discharge because of his allergies. Because Nella wants to go on to look for the "island," Howard attempts to tow them with his truck. Eventually the roads lead them to a toll bridge where the truck runs out of gas, causing a line of vehicles to form behind it. They then launch the boat into the creek, where it proves to be watertight. Howard heads off on his own but returns the next day with supplies for the voyage and Julie tells him about her relationship with Jeff. When a U.S. Coast Guard patrol intercepts the boat, seeking its registration papers, Nella tells the officer about their search for Jeff, and to everyone's surprise he allows them to continue. Later, after the boat becomes stuck on a mud bank in a swampy area, Jenny starts to think and begins to feel guilty about not having been more appreciative of Jeff's qualities. Nella goes off by herself and encounters an old hermit whom she thinks is Robinson Crusoe. Meanwhile Jeff has returned unscathed to Pinedale where Sara shows him a postcard she has recently received from the trio, apparently from Valparaiso. Sara blames herself for their having left and sets off with Jeff to look for them. They persuade the Coast Guard to mount a search for the boat. When the Coast Guard patrol finally finds them, Nella sees their rescue as the end of their attempts to find the "island" and Jeff. Jenny then must finally tell Nella that the imaginary island does not exsist and the child runs off into the swamp. There she is found by Jeff, who has arrived with the patrol. Jeff and Jenny reunite but when they must appear before the Coast Guard's commanding officer, he severely criticizes their actions. Nella then tells him that he is just jealous that Mr. Pecket's expedition found Jeff while the Coast Guards' did not. After the patrol boat's officer whispers to the commanding officer about the expedition's dream, the C.O. changes his tone, apologizes to "Captain" Pecket, and invites them all to dinner in the officers' mess. There, after he reads several fictitious, congratulatory telegrams attesting to Pecket's belief in the rightness of a child's heart, the officers stand and salute Nella.