Carefree follows Jerry Day, [Gary Cooper], an easygoing and financially reckless man, and his second wife, Toni Carstairs Day, [Carole Lombard], as they rack up a growing hotel bill in a Shanghai hotel that Jerry has no means to pay. Desperate to cover the debt, Jerry hatches a scheme to swindle other guests and even contemplates selling the custody rights to his five-year-old daughter, Penelope "Pennie" Day, [Shirley Temple], a child he has yet to really know. The plan sets off a sequence of impulsive moves that pull the couple deeper into a web of deception, testing their marriage and their ability to protect Pennie from the consequences of their choices.
Toni, shocked by Jerry’s reckless improvisation, travels to Paris alone, while Jerry stays behind long enough to meet Pennie and be struck by the child’s bright, trusting nature. This encounter alters Jerry’s outlook; the moment he meets his daughter, he becomes determined to keep custody and to protect Pennie from being used as a pawn in his schemes. The trio are eventually reunited in Paris, where Toni will take on a motherly role for Pennie, adding a new dynamic to their fragile family unit.
The plot takes another twist when Jerry, hoping to fund his new aspirations, sells a non-existent gold mine to Felix Evans, [Guy Standing], a veteran swindler who proves to be sharper and more calculating than Jerry anticipated. With money running short again, Jerry and Evans renew their partnership in a risky plan to steal a valuable necklace from Mrs. Crane, [Charlotte Granville], a wealthy woman Pennie has befriended. The theft is audacious: the necklace is removed and hidden inside Pennie’s teddy bear during a gathering that includes a party thrown by Mrs. Crane. The guests are searched but the necklace remains hidden, and Pennie goes to bed with the bear clutched close and the truth of the morning’s events tucked away in her dreams.
In a tender moment, Pennie discovers the necklace hidden inside the teddy bear and asks Jerry if he took it. He denies it, but Toni, trying to soothe her fears, tells Pennie that it was she who acted, not Jerry, to prevent tears from undoing the fragile trust. This lie complicates the moral balance and keeps Pennie’s faith in her father intact, even as Jerry’s guilt grows heavier.
Jerry brings the necklace to Evans to sell, but Penny’s unwavering faith in him stirs a craving for honesty. He decides to retrieve the necklace, and a confrontation erupts: Evans shoots Jerry, who fires back and kills Evans. Back at Mrs. Crane’s side, she agrees to lie that the necklace was merely misplaced, not stolen, allowing a fragile peace to settle over the proceedings. Mrs. Crane then takes Pennie away to boarding school, effectively removing the child from the immediate drama of Jerry’s schemes.
Meanwhile, Jerry’s gunshot wound remains untreated as he and Toni confront the gravity of their choices. They avoid going to a doctor lest the police become involved, and Jerry drags himself toward the car only to collapse. Toni rushes him to a hospital while a police officer stands nearby, presenting a final, stark moment of reckoning. Lying in a hospital bed, Jerry contemplates the uneasy truth that coming clean might not be as terrible as he feared, signaling a tentative, if fragile, end to this turbulent chapter in their lives.
