Before going to sleep one stormy evening, Elizabeth Blair sees through her window at the Lakeside Orphanage that her pony "Spunky" is getting soaked and motions for Spunky to come in. In the morning, kindly matron Mrs. Henrietta Denham finds Spunky asleep in a bed next to Elizabeth's and sends Elizabeth to Mrs. Higgins, the stern superintendent, who orders that the pony and Elizabeth's duck "Betsy" be sold immediately. The animals were once part of the theatrical act of Elizabeth's parents, who were killed in an automobile accident. Later that day, the trustees of the orphanage come into the dining hall just as Elizabeth finishes singing a song that her older sister Mary, a drudge at the orphanage, wrote. When one of the trustees, Mr. Wyckoff, calls Elizabeth a wicked child, Mary retorts by calling him a mean and hateful man. After Wyckoff and the other trustees leave, attorney Edward Morgan, the richest trustee, who has just inherited his father's estate, praises Mary for her spunk and confesses that he too likes to write songs. Later, when Wyckoff catches Elizabeth imitating him and threatens to send her to a public institution, Edward decides to adopt Elizabeth, whom he calls "Curly Top." Because he does not want her to feel obliged to him, Edward invents a client, Hiram Jones, who, he tells Elizabeth, wants to adopt her. When Mary explains that she promised her parents that she and Elizabeth would never be separated, Edward arranges for both of them, along with Spunky and Betsy, to move into his summer beach house at Southampton on Long Island, where his Aunt Genevieve lives. As Elizabeth learns proper etiquette from Reynolds, the butler, to whom she endears herself, Edward, who has been unable to find real happiness, begins to fall for Mary, although he does not tell her. Mary, who likewise has become enamored of Edward, is courted by Jimmie Rogers, a wealthy youth who takes her flying and dancing. After Elizabeth and Mary give a charity bazaar for the orphanage, Mary refuses Jimmie's proposal. However, when she overhears Edward, annoyed at Genevieve's suggestion that he is jealous of Jimmie, emphatically deny that he is interested in Mary, she agrees to marry Jimmie. Without revealing his true feelings, Edward congratulates Mary and prepares to sail for Europe, but Mary breaks the engagement after she realizes that she does not really love Jimmie. She and Edward then make plans to marry, and he reveals that there really is no Hiram Jones.