As artist named Sonny Malone rips up a drawing and throws it out his studio window. The scraps of paper are carried by the wind, and they flutter onto a wall mural of muses dancing. Suddenly, a spell is broken, and the figures on the wall come to life, dancing all over Los Angeles, California. Soon, Kira, one of the dancing spirits, roller skates along a beach path and stops to kiss Sonny, then disappears. Later, Sonny sheepishly returns to his old job at Airflow Records, where he paints replicas of album cover artwork for music store displays. He tells his fellow commercial artists that he could not earn a living as a fine artist. Meanwhile, Sonny notices that Kira, the mystery girl, appears on the album cover art that his boss, Simpson, has assigned. Sonny is fascinated and drops everything to discover her identity. The first thing he learns is that Kira was not paid for modeling in the photograph, so as far as the accountant is concerned, she does not exist. Next, he talks to the photographer, and finds that Kira wandered into the frame during the shoot at the Pan Pacific auditorium. Her appearance was not planned in advance. Sonny returns to the beach path, where he first saw Kira, but instead he meets a clarinet player named Danny McGuire. As the men talk, Sonny sees Kira on roller skates. When he waves at her, she ignores him and keeps skating. He borrows a motorcycle, follows her, but soon becomes distracted by her smile, and tumbles off the pier into the ocean. When he returns to shore, Danny offers to buy him a cup of coffee. As they talk, Sonny confesses his attraction to the mystery girl, and Danny assures him that he is not crazy. He encourages Sonny to keep looking. Sonny visits the Pan Pacific, and notices an unlocked door on the building’s upper floor, walks inside, and sees Kira skating among the stacked boxes and amplifiers below. As he talks to her, he points out that all the events of the day add up to coincidence, but she thinks that someone has arranged for them to meet. As she skates away, Kira calls him by name, commenting that they will meet again. Back at work, Simpson complains that Sonny is spending too much time on Kira’s painting, and demands a meeting in his office. He lectures Sonny on the importance of doing what he is told because the job description does not include improving the existing album cover art. He sends Sonny to deliver finished canvases to the Platinum Palace, a nearby record store. There, he meets Danny, who purchased a vintage Glenn Miller album. When Danny invites him to hear the album at his home, Sonny learns that Danny played clarinet with Miller, Tommy Dorsey, and Benny Goodman. Later, after he stopped touring, he opened a jazz nightclub in New York City, but the heart went out of his music when his girl friend, a singer in the band, left. Sonny notices the singer’s photograph on the album sleeve, and how closely she resembles Kira. Meanwhile, Danny talks about opening a new club if he could only find the right location. Sonny offers to help, and leaves. At night, Sonny returns to work to spend extra time on Kira’s painting. When Kira appears, Sonny stops work and they skate. Kira leads Sonny back to the Pan Pacific, and suggests that it might be the perfect location for Danny’s club. Later, Sonny shows Danny the building, and he becomes excited. He asks Sonny to be his business partner, and Sonny agrees. As Danny wonders what to name his club, Kira appears and recites from Samuel Taylor Coleridge’s poem “Kubla Khan” with its description of a pleasure-dome identified as “Xanadu.” Sonny quits his job much to his co-workers amazement. Later, Sonny and Kira celebrate the creation of Xanadu, but she refuses to answer any of his questions about her background. They kiss and fall deeper in love. Danny and Sonny work with a construction crew to remodel the Pan Pacific, and Danny tells Kira he wants the first dance with her at the club’s opening. She teases him that he needs something glitzy to wear for the occasion, and she and Sonny take him shopping. Danny tries on many outfits, and settles on a sharp tuxedo. The night before the opening, Danny confesses having jitters, but Kira reassures him. Later, Kira hurts Sonny when she reveals that she was sent on a mission by the gods to make Xanadu happen. When she tells him that she is a muse from Mount Helicon, and is the daughter of Zeus, he thinks it is a joke and refuses to believe her. Then, she manipulates the actors from an old gangster movie on television to speak to him. As he reels from the shock, Kira explains that muses are supposed to inspire, not break the rules and fall in love, but she will always love him. She then disappears. The next day, Sonny sulks at the beach, but Danny convinces him that his love for Kira is worth a fight. Roller skating at the beach, Sonny comes across the mural of Kira and her sisters. He races toward the wall, crashes into it, and finds Kira on the other side. She warns him that no one has ever kidnapped a muse. Sonny and Kira argue that they are in love and should be together, but Zeus refuses to break the rules, and banishes Sonny. However, at the club’s opening, Kira appears after Zeus grants her a moment back on Earth. She dances and sings several numbers in various musical styles and in an array of costumes. Kira performs her last song with her sisters, then disappears. Sonny thinks Kira is gone for good, and dejectedly slumps in a booth. Danny orders him a drink. As Sonny reaches for his cocktail, he realizes his waitress is Kira, and she has not left after all.