Danny Noonan (Michael O'Keefe) works as a caddie at the exclusive Bushwood Country Club to earn enough money to go to college. Danny caddies for Ty Webb (Chevy Chase), a mischievous but avid golfer and the son of one of Bushwood's co-founders. Danny tries to gain favor with Judge Elihu Smails (Ted Knight), the country club's arrogant co-founder and director of the caddie scholarship program, by caddying for him. Meanwhile, Carl Spackler (Bill Murray), a mentally unstable groundskeeper who lives in the maintenance building, is sent by his Scottish supervisor Sandy McFiddish (Thomas A. Carlin) to hunt a gopher that is damaging the course. He attempts to kill it with a rifle and high-pressure hose but fails.
Al Czervik (Rodney Dangerfield), a loud and free-spirited nouveau riche golfer, begins attending the club. Czervik distracts Smails as he tees off, causing his shot to go badly. Later, frustrated by slow play, Czervik wagers with Smails. Smails is furious for losing the bet and throws his putter, injuring an elderly woman. Danny takes the blame for the incident to gain Smails' favor. Smails encourages him to apply for the caddie scholarship.
At Bushwood's annual Fourth of July banquet, Danny and his girlfriend Maggie (Sarah Holcomb) work as waiting staff. Czervik continues to annoy Smails and the club members, while Danny becomes attracted to Lacey Underall (Cindy Morgan), Smails' promiscuous niece.
Later, Danny wins the Caddy Day golf tournament and the scholarship, earning him an invitation from Smails to attend the christening ceremony for his boat. The boat is sunk at the event after an accident involving Czervik's larger boat. Returning home, Smails discovers Lacey and Danny in bed at his house. Expecting to be fired or to have the scholarship revoked, Danny is surprised when Smails only demands that he keep the incident secret.
Unable to bear the continued presence of the uncouth Czervik, Smails confronts him and announces that he will never be granted membership. Czervik counters by announcing that he would never consider being a member: he insults the country club and claims to be there merely to evaluate buying it and developing the land into condominiums. After a brief fight and exchange of insults, Webb suggests they discuss the situation over drinks. After Smails demands satisfaction, Czervik proposes a team golf match with Smails and his regular golfing partner Dr. Beeper (Dan Resin) against Czervik and Webb. Against club rules, they also agree to a $20,000 wager on the match, which quickly doubles to $40,000. That evening, Webb practices for the game against Smails and his errant shot brings him to meet Carl; the two share a bottle of wine and a joint.
The match is held the next day. Word spreads of the stakes involved, drawing in a crowd. During the game, Smails and Beeper take the lead, while Czervik, to his chagrin, is "playing the worst game of his life." He reacts to Smails' wisecracks by angrily doubling the wager to $80,000 per team. When his own ricocheting ball strikes his arm, Czervik fakes an injury in hopes of having the contest declared a draw. Lou (Brian Doyle-Murray), the caddy manager who is acting as an umpire, tells Czervik his team will forfeit unless they find a substitute. When Webb chooses Danny, Smails threatens to revoke his scholarship, but Czervik promises Danny that he will make it "worth his while" if he wins. Danny chooses to play.
Upon reaching the final hole, the score is tied. Judge Smails scores a birdie. Danny has to complete a difficult putt to win. Czervik again doubles the wager based on Danny making the putt. Danny's putt leaves the ball hanging over the edge of the hole. At that moment, in his latest attempt to kill the gopher, Carl detonates plastic explosives that he has rigged around the golf course. Several explosions shake the ground and cause the ball to drop into the hole, handing Danny, Webb and Czervik victory on the wager. Smails refuses to pay, so Czervik beckons two intimidating men to "help the judge find his checkbook." As Smails is chased across the course, Czervik leads a wild party at the clubhouse, attended by all of the onlookers at the match. Some distance away, the gopher emerges from underground, unharmed, and dances to the film's main theme, "I'm Alright," amid the smoldering ruins of the golf course.
Chevy Chase as Ty Webb
Rodney Dangerfield as Al Czervik
Ted Knight as Judge Elihu Smails
Michael O'Keefe as Danny Noonan
Bill Murray as Carl Spackler
Sarah Holcomb as Maggie O'Hooligan
Scott Colomby as Tony D'Annunzio
Cindy Morgan as Lacey Underall
Dan Resin as Dr. Beeper
Henry Wilcoxon as Bishop Fred Pickering
Elaine Aiken as Mrs. Julie Noonan
Albert Salmi as Mr. Roy Noonan
Ann Ryerson as Grace
Brian Doyle-Murray as Lou Loomis
Hamilton Mitchell as Motormouth
Peter Berkrot as Angie D'Annunzio
John F. Barmon Jr. as Spaulding Smails
Lois Kibbee as Mrs. Smails
Brian McConnachie as Drew Scott
Scott Powell as Gatsby
Jackie Davis as Smoke Porterhouse
Thomas A. Carlin as Sandy McFiddish