In 1926, a small rural town in the Australian outback, Dungatar, suffers a tragedy when schoolgirl Myrtle Dunnage becomes the scapegoat for the death of her classmate, Stewart Pettyman, culminating in her exile enforced by the local police sergeant, Horatio Farrat. Fast forward to 1951, Myrtle, now reinvented as an accomplished dressmaker named Tilly, portrayed by Kate Winslet, returns to Dungatar with no recollection of the fateful incident that marred her childhood. Seeking answers, she turns to her mentally ill mother, Molly, but Molly's memories remain as elusive as the truth itself.
At a local football final, Tilly stuns everyone with her striking red couture gown, diverting the players' attention and leading to a Dungatar victory. When the dashing Teddy McSwiney, played by Liam Hemsworth, approaches her, she swiftly changes into an equally captivating black outfit for the second half of the match. Tilly's enchanting attire becomes a topic of intrigue, prompting Gertrude Pratt, a local, to request Tilly to design a dress for an upcoming footballers' dance, under the condition that she reveals the truth behind Stewart's death.
During the dance, Gertrude becomes the center of attention through Tilly's artistry, but their conversations lead to haunting revelations; Tilly had kept her distance from Stewart due to his bullying. As the story unfolds, the townsfolk begin to request more of Tilly's exquisite dresses, creating a stir as she garners attention from her admirers, including Teddy, who indicates a romantic interest in her.
Complications arise when Sergeant Farrat confides in Tilly about the reasons for her exile; he reveals he was blackmailed by Stewart's father, Evan, a manipulative town councilor, for harboring a personal secret. In a twist of fate, Tilly and Farrat bond over their shared aspirations in fashion. While rivalry ensues with Una Pleasance, who attempts to undermine Tilly's success, Tilly's creations lead her to engage further with the townspeople, consequently jeopardizing Una's budding business.
Tilly delves deeper into her tragic past when she offers Farrat a feather boa in exchange for access to evidence about Stewart's death, uncovering that her former schoolteacher, Beulah Harridiene, might have shaded the truth out of fear of Evan's retribution. At Gertrude's wedding, the suspense heightens when Farrat reveals that Evan is also Tilly's estranged father, leading Tilly on a path of self-discovery.
A pivotal revelation occurs when Teddy, seeking to help Tilly gain closure, shares firsthand accounts of the fatal incident involving Stewart's downfall, which shattered Tilly's childhood. As passion flourishes between Tilly and Teddy, tragedy strikes when he succumbs while attempting to show off. The tumultuous events culminate in Tilly's mother, Molly, passing away after a stroke, leaving Tilly alone to confront the town's demons.
As chaos unfolds, with another local, Percival, meeting an untimely end, things spiral out of control. To shield Tilly from repercussions, Farrat takes the blame for the chaos that ensues, creating a path for Tilly to confront Evan about his betrayal. In a dramatic showdown, Evan's wife, Marigold, enacts her vengeance, irrevocably changing the fabric of the town.
In a final act of defiance, while the townspeople head towards a new performance, Tilly opts to embrace her liberation, setting fire to her past and departing from Dungatar with the resolve that she is finally free from its oppressive grasp, leaving the town to grapple with the ashes of its history.
