Four months post-graduation, the lives of recent college graduates take a tumultuous turn when Wendy Beamish (Mare Winningham) and William "Billy" Hicks (Rob Lowe) find themselves in a car accident. Their friends—Alec Newberry (Judd Nelson), Kirby "Kirbo" Kegger (Emilio Estevez), Kevin Dolenz (Andrew McCarthy), Leslie Hunter (Ally Sheedy), and Jules (Demi Moore)—hurry to the hospital, relieved to discover that the pair has only minor injuries after Billy's reckless driving leaves Wendy's new car smashed. Jules scolds Wendy for covering Billy's medical expenses, feeling that his actions were careless, especially since he wrecked a gift from her father. Following the incident, Billy faces arrest, straining the group's dynamics.
At the hospital, Kirby is starstruck when he spots Dale Bieberman (Andie MacDowell), a doctor he idolized during their college days, rekindling his old crush. After posting Billy's bail, the friends convene at St. Elmo's Bar, where Kirby works. They voice their concerns about Wendy's willingness to tolerate Billy's irresponsible behavior, but her deep-seated insecurities prevent her from breaking away.
Meanwhile, Billy attempts to reconnect with his estranged wife and mother of his child but ends up flirting with multiple women at the bar, igniting Alec's frustration when he loses a job opportunity he had secured for Billy. Miscommunication arises briefly among friends, but they soon snap back into carefree revelry, dancing and enjoying their time together.
Later, Alec talks to Leslie about his political ambitions and proposes marriage, but she feels unprepared for such a step. That night, Jules arrives at their apartment seeking shelter, stirring further tensions. Kevin and Kirby, rooming together, discuss Kirby's growing obsession with Dale, finally leading up to Billy crashing their night.
As the days unfold, Alec assists Billy in securing another job, while Kevin's visit to Jules's lavish new apartment leads to an awkward confrontation about their past. Despite Kirby's attempts to impress Dale, plans are thwarted when she is called away on emergencies.
In a twist of fate, the tangled relationships deepen; Alec confides in Kevin about cheating on Leslie, who feels betrayed. Billy's antics lead to complications with his former wife, Felicia, as he grapples with his responsibilities as a husband and father. Amidst various troubles, Kirby finds an opportunity to pursue Dale at a party that culminates in unexpected outcomes.
On Halloween night, tensions flare at St. Elmo's Bar as the group gathers once more. Billy's reckless behavior escalates and culminates in chaotic confrontations and heartfelt moments, forcing characters to face their tangled loyalties and desires. Conflict arises within the group, but ultimately leads to personal revelations as love, heartbreak, and friendship intertwined.
In the end, after helping Jules navigate her struggles with addiction and self-worth, Billy acknowledges everyone's feelings of feeling lost in life, which mirrors the essence of "St. Elmo's Fire"—a symbolic guiding light. On a poignant note, Billy and Wendy share an intimate moment before he embarks on a new chapter in New York. The group forms new commitments to themselves and one another, vowing to support each other's journeys while humorously navigating the uncertainty of adult life.
As they prepare to meet for breakfast, they humorously decide to find a new place to gather, leaving behind their past hangouts, with Jules joking about saving money on her stepmother's funeral.
