At John F. Kennedy High School located in the rough neighborhoods of Columbus, Ohio, Vice Principal Roger Rubell has his hands full on a frigid winter Monday morning. He is confronted with a range of pressing issues, including a student suffering from a stab wound, a shortage of substitute teachers, and a school psychologist who has gone off the rails. Additionally, Lisa Hammond (JoBeth Williams), a lawyer as well as a former student of Kennedy High, arrives to inform Rubell about upcoming depositions the following day. Lisa represents John Calvin, a former student suing the school for graduating him without the ability to read or write.
In a tense moment, school superintendent Dr. Donna Burke visits to remind both Rubell and Principal Eugene Horn that the institution's financial stability hangs in the balance hinging on public perception, especially in light of both the incident involving the psychologist and the lawsuit. While reviewing the files of teachers to be deposed, Rubell assures Dr. Burke that Alex Jurel, a well-loved social studies teacher with 15 years of experience at Kennedy, will stand behind the school, despite his complicated history with student rights.
As the school psychologist is temporarily sidelined, Alex takes on some counseling responsibilities, connecting with a rebellious student by the name of Eddie Pilikian (Ralph Macchio), who is only reading at a sixth-grade level. Compounding the issue are Eddie’s divorced parents, who seem more focused on their custody disputes than on supporting their son’s education. Going against school policy, Alex invites Eddie to join his advanced social studies class, hoping to inspire him.
Later that evening, Rubell and Alex find themselves unwinding at a bar, where Alex expresses his exhaustion with trying to teach within such a dysfunctional educational framework, feeling on the verge of quitting his job. The following morning, in the school corridor, Alex tries to steer clear of Lisa Hammond, who follows him into the men’s restroom to hand him a subpoena. She reveals that she once had a crush on him during high school and invites him to dinner.
During the initial deposition with Principal Horn, Lisa quickly realizes that this won’t be easy as Horn evades her questions. Meanwhile, Eddie intervenes during a bullying incident involving his disturbed friend Danny Reese (Crispin Glover), who struggles with kleptomania and schizophrenia. Afterwards, a frightened Danny ponders whether to acquire a weapon for self-defense.
During dinner, Lisa probes into Alex's thoughts on the Calvin lawsuit. He intentionally holds back his true feelings, asserting that the lawsuit is more about financial gain rather than educational improvements. Following discussions with another educator, Alex understands that no one cared to invest the time to aid Eddie in improving his reading skills, instead allowing him to be pushed through the system.
In a peculiar twist, Herbert Gower (Richard Mulligan), recently released from a mental health facility, impersonates a substitute teacher named Stuart Van Ark. He arrives at Kennedy High to teach history, entertaining students with antics such as tossing a book out the window and reciting the Gettysburg Address while dressed as Abraham Lincoln.
Alex becomes impressed by Eddie's unique use of photography to complete an assignment, seeing it as a potential breakthrough. On another dinner date, as Alex and Lisa share a kiss, she seems more interested in pursuing the Calvin case than in their romantic connection. Frustrated, Alex insists that the lawsuit will only tarnish the reputation of the school, yet he hints at supporting the institution during the deposition.
Tragically, Kenneth 'Ditto' Stiles, an elderly teacher, unexpectedly passes away at his desk from a heart attack, unnoticed by his students. Grace Wensel (Madeleine Sherwood), Principal Horn's secretary, is finally alerted, and an ambulance is called to handle the situation.
Meanwhile, Herbert's portrayal of famous American figures keeps the students engaged as they participate in historical reenactments. As their bond deepens, Diane Warren (Laura Dern) confides in Eddie about her secret relationship with the gym teacher Mr. Troy (Art Metrano) and the reality of her pregnancy. In a tough spot, she begs Alex to take her to an abortion clinic, to which he reluctantly agrees.
In a troubling deposition, teacher Carl Rosenberg (Allen Garfield) refuses to lie on behalf of the school, stating bluntly that John Calvin hardly attended classes yet received passing grades "because it is policy."
Amidst this chaos, Alex ultimately persuades Eddie to enroll in another reading class, but Rubell insists the boy is doing fine as is. When Rubell points out that they must assist hundreds of students and cannot devote time to one troubled child, Alex fears they are repeating the errors of John's case.
School attorney Alan Lewis (Morgan Freeman) cautions Rubell that if Alex supports Rosenberg’s claim during his deposition, it could lead to an unfavorable outcome for the school. Distrustful of Alex, Rubell suggests Dr. Burke remove him from the school altogether.
A tragic turn occurs when a police officer misinterprets a situation involving Danny. The panicked teen, attempting to hide a gun, is shot fatally, leaving Eddie devastated and determined to leave school altogether.
As the authorities arrive to uncover Herbert's true identity, his enthusiastic teaching style leaves a lasting impression on his students, who are left disappointed at his untimely exit.
Meanwhile, Lisa discovers her firm has settled the Calvin case out of court, feeling disheartened that the opportunity for real change in Kennedy High has slipped through their fingers. Dr. Burke, anxious about Alex's potential to cause disruptions, pressures Rubell to dismiss him.
Unaware of the settlement, Alex appears for his deposition and is summoned to face the school board instead. Dr. Burke confronts him with resignation papers while accusing him of escorting Diane for an abortion without parental consent. Rubell, as a board member, advises Alex to accept the deal to avoid potential allegations of sexual misconduct. Though Alex declines to sign, he is forced to start packing as reality sets in that he is powerless to effect change.
When Lisa pleads with him to fight back, asserting that the school board would shy away from firing him due to the bad press it would generate, Alex is visibly touched as his students show their support.
In a last-ditch effort to illustrate the importance of his ideals as an educator, Lisa boldly strips off her clothes in public. This stirs Alex into declaring, > “I’m a teacher!” He threatens a lawsuit if they proceed to fire him, striding with pride back into the school to the thunderous cheers from his students.
