When the Miss America Pageant is threatened by a terrorist, the FBI puts Special Agent Eric Matthews is put in charge of the operation. He sends his homely and tomboyish partner agent Gracie Hart to receive a makeover and reluctantly enter the pageant undercover. Although Gracie has history of ignoring orders and doing what she thinks is right, which earned her a demotion, her looks make her the best choice for the pageant. Gracie believes the pageant is ridiculous and treats it irreverently, refusing to act feminine in spite of the lessons from her pageant coach Victor. Soon to be replaced pageant director Kathy Morningside resents Gracie, feeling her involvement brings down the pageant's integrity.
While Gracie's focus should be finding the terrorist, she unwittingly becomes a fan favorite at the pageant with her quirkiness. She also befriends the women she previously thought were silly and shallow, becoming particularly close to supposed ingenue Cheryl. The other women teach her that the pageant actually matters and she teaches them to let loose now and then. She also strikes up a romantic relationship with Eric. During her investigation, Gracie discovers several suspects within the pageant itself including the director and Gracie's new friend Cheryl. The investigation is called off when the terrorist is arrested away from the competition.
Gracie has grown suspicious of Kathy, though, and insists that the FBI keep up their investigation. They refuse and Eric won't take her side, so Gracie quits and goes back to protect the girls in the pageant, sure that they're still in danger. When Eric realizes that Gracie was right he returns to help her and they find out that Kathy, bent on revenge for the way the pageant is treating her after so many years of service, means to blow up the winner. Gracie stops Kathy and her fellow contestants crown her as Miss Congeniality for her heroics.