In 1959, Rydell High School's students are starting a new year.

Sandy Dumbrowski, the new girl at school and Danny Zuko, the leader of the 'Burger Palace Boys', had a brief romantic fling over the summer. Sandy and Danny soon bump into each other at school, and while Sandy is happy to see him, he plays it cool.

At Marty's pajama party, the girls give each other pierced ears, and talk about boys. Marty tells about her long-distance courtship with Freddy. Meanwhile, the Burger Palace Boys are bust stealing hubcaps and teasing Kenickie about his new (used) car.

Danny sees Sandy again and tries to apologize for his behavior. Head cheerleader Patty Simcox interrupts to prompt Sandy to join to squad and to tease Danny about his latest indiscretions. The kids take their newfangled portable radios for a rock and roll picnic in the park and plan how they will pair off at the upcoming school prom, while Roger shares his love for Jan and his favourite hobby . Rizzo teases Danny for falling for a girl who resembles the excessively proper teenage ingenue, Sandra Dee. Sandy realizes that Danny is putting her off to be cool and wishes she had never met him.

Then Danny suggests that Marty go out with Eugene, and she chases after him. Act I ends with a spirited pledge of friendship.

At the High School Hop, everyone is dancing, except Sandy. She is home feeling sorry for herself. Meanwhile, favourite radio DJ Vince Fontaine, is warming the kids up for the hand-jive dance contest. Kenickie dumps his blind date, Cha-Cha DiGregorio, and pairs up with Rizzo. Danny and Cha-Cha then proceed to win the dance contest.

A few days later at the Burger Palace after school, a couple of the guys run into Frenchy, who flunked out of Rydell and has now dropped out of beauty school. Danny, who has taken up track in order to win back Sandy's affections, does not know that Cha-Cha's boyfriend's gang has challenged the guys to a rumble. He is more concerned about patching things up with Sandy at the Twi-Light Drive-In, but he moves too fast for her, and she leaves. A couple of days later, the "greasers" are having a party in Jan's basement, as Doody and Roger sing Rock 'n' Roll Party Queen. Sandy wonders what she needs to do to fit in at Rydell.

The next time Sandy meets up with the Burger Palace Boys and the Pink ladies, she has transformed herself into a greaser's dream date . Rizzo and Kenickie reunite.