Jim Douglas, a former racing legend now reduced to competing in demolition derbies, lives in an old firehouse that boasts a stunning view of San Francisco Bay alongside his friend, Tennessee Steinmetz. Tennessee is a talented mechanic and sculptor who also embraces Buddhist practices. During a visit to an upscale European car dealership, Jim meets the cheerful sales assistant, Carole Bennett, and the haughty owner, Peter Thorndyke, who mistreats a recently returned white Volkswagen Beetle. Facing financial difficulties, Jim exits the dealership, only to find the Beetle inexplicably tailing him back to his firehouse. Following a run-in with law enforcement for supposed grand theft, Jim reluctantly agrees to a lease-purchase for the quirky car.
Initially, Jim is skeptical of the Beetle's peculiar behavior and its budding relationship with Carole, suspecting that Thorndyke may have duped him into buying a faulty vehicle. Yet, Tennessee quickly senses the car's spunky personality and names it “Herbie.” As Jim readies Herbie for racing, he's astounded when the little car achieves victory in its first race, kicking off a remarkable winning streak that leaves Thorndyke bewildered.
Fueled by rage and a desire to sabotage their success, Thorndyke sneaks into Tennessee's garage one night while Jim and Carole are on a date. He maliciously sabotages Herbie by pouring Irish coffee into the gas tank, causing it to malfunction during the next race. Angered, Jim plans on replacing Herbie with a sleek Lamborghini 400 GT, much to the chagrin of Carole (who has resigned from Thorndyke's dealership in protest) and Tennessee. Hurt by this betrayal, Herbie retaliates by damaging the Lamborghini and going on the run.
Feeling defeated, Jim allows himself to be captured by Thorndyke but seizes an opportunity to escape when ordered to be dismantled. Realizing that Herbie is alive, Jim sets off on a harrowing search for the wayward car, witnessing it cause chaos across the city. The chase culminates at the Golden Gate Bridge, where Herbie teeters on the edge of self-destruction. With unwavering resolve, Jim hazards his life to persuade Herbie to mend their relationship and begin anew.
In the midst of this turmoil, Tang Wu, a savvy Chinese-American entrepreneur whose store was damaged by Herbie’s antics, presents Jim with a surprising deal: he will drop the charges against Herbie in exchange for relinquishing the vehicle, but under one condition—Jim and Tennessee must participate in the prestigious El Dorado race, a grueling two-day event that traverses the Sierra Nevada mountains from Yosemite Valley to Virginia City and back.
As the stage is set for this exhilarating competition, Herbie, now back under Jim’s ownership, prepares to take on the cunning Thorndyke and his co-driver, Havershaw. In the first leg of the race, Thorndyke employs dirty tricks to gain the upper hand, leaving Jim’s team nursing a battered vehicle as they return home. Just in time for repairs, they find Herbie uncooperative, revealing an agreement made by Wu with Thorndyke regarding vehicle ownership if they lose.
The next day brings renewed challenges as Herbie battles to regain lost ground in the second leg of the race. Despite the odds, Herbie's determination and cunning allow it to gain impressive ground through strategic shortcuts. As the finish line approaches, however, the relentless strain causes the beloved car to split in half. Amazingly, the rear section (carrying Tennessee) crosses the finish line first, while the front half (with Jim and Carole) rolls across just behind, clinching a spectacular victory for Herbie.
After the race, Wu honors his word by acquiring Thorndyke's dealership, bringing Tennessee on board as his assistant while relegating Thorndyke and Havershaw to the shop as mechanics. As a celebration of their unbreakable bond, Jim and Carole set off on their honeymoon, with Herbie joyfully driving them away, its mechanical heart lovingly restored to wholeness.
