In New York City, Tommy Williams, Ray Lambert and Morton "Hammy" Hammond have been performing their song and dance act, "The Three Balls of Fire," at Nick's spaghetti joint, but are let go by Nick because business is bad. Despite their impoverished condition, when Tommy finds a five dollar bill in their tip box, he seeks out the woman who put it there, thinking that she must have made a mistake. Tommy has an immediate rapport with the woman, Miss Jones, and happily keeps the money when she says that it was not a mistake. They exhange cards and Tommy offers to show her the town if she calls them at their hangout, a drugstore frequented by Broadway hopefuls. The next day, the boys get a call from the office of Thornton Reed, the biggest producer on Broadway, and find that Miss Jones is actually "Jonesy," Reed's well-known assistant. She sets up an audition for them, but warns them not to tell anyone else because Reed does not like actors. Back at the drugstore, while Hammy and Ray tell their pals about the audition, Tommy sees singer Penny Morris crying and is immediately attracted to her. After giving her encouragement, he walks her home and meets her piano teacher father and one of his students, Barbara Jo, a child who lives at the Dorman Street settlement house, where Penny works. The next day, the audition is jammed and Reed is so angry that he refuses to listen to the boys' act. The three are despondent until Tommy gets the idea of becoming their own producer. Certain that they could raise the money by enlisting a charity, because America is "cause crazy," Tommy decides to use the settlement house when he learns that the children are being deprived of their summer in the country because of a lack of funds. The settlement house's manager, Mr. Stone, approves of the idea when Tommy, Penny and the others say that they will get talent from their friends and raise money for an auditorium by throwing a block party. The rehearsals go well and enthusiasm runs high for the 4th of July block party. When they learn, however, that twenty British refugee children will be making a short-wave broadcast to their parents in London on that day, Tommy decides to use their plight as his cause, revealing to the idolizing Penny that he an opportunist. On the day of the block party, a remorseful Tommy has a change of heart, and they raise enough money to put the show on for the settlement children. When Tommy goes to see Jonesy, who was at the party, she offers him and the others parts in Reed's new show, which is having difficulties in its Philadelphia tryouts. Tommy then begs Penny to come with him, but she cannot disappoint the kids. Tommy realizes that his feelings for her will not let him fail them, and he and Penny turn down Jonesy's offer. Impressed with their good-heartedness, Jonesy allows them to use Reed's long-closed Duchess Theater for their show and promises to have Reed attend. On opening night, after arduous refurbishing and rehearsals, the show opens to a full house, but Jonesy is unable to bring Reed. Then, a city inspector arrives and closes the show because the production is violating the fire laws. A demoralized Tommy apologizes to the audience, but soon learns that no one has demanded their money back, and some have even left more so the children can go on their holiday in the country. After Barbara Jo and the others offer to give Tommy the money to put his show on again, he turns them down. Just then, Reed, who has been summoned from Philadelphia by city officials, angrily arrives and Jonesy convinces him to watch a private performance of the show. Some time later, Reed presents Babes on Broadway in a lavish production.