Joel Goodson (Tom Cruise) is a tame high school student who lives with his wealthy parents in the North Shore area of suburban Chicago. His father wants him to attend Princeton University, his alma mater, so Joel participates in Future Enterprisers, an extracurricular activity in which students work in teams to create small businesses.
When his parents go away on a trip, Joel's friend Miles (Curtis Armstrong) convinces him to take advantage of his newfound freedom by having some fun. On the first night, he raids the liquor cabinet, plays the stereo loudly, and dances around the living room in his underwear and pink dress shirt to the tune of "Old Time Rock and Roll". Another night, he races his father's Porsche 928, despite his parents' explicit instruction to drive only his mother's car.
The following day, Miles suggests that Joel contact a call girl. Joel refuses, but Miles calls "Jackie" on his behalf and leaves Joel's address on the answering machine. Jackie (Bruce A. Young) turns out to be a tall, masculine transvestite. Joel sends Jackie away, but before she leaves, she gives Joel the number for Lana, another prostitute, promising that she's what "every white boy off the lake wants".
That night, Joel is unable to sleep and hesitantly calls Lana (Rebecca De Mornay). She visits him that evening, and turns out to be a stunning blonde. They then have sex and spend a heated night together.
The following morning, Lana asks Joel for $300. She agrees to wait while he goes to the bank to get the money; however, when he returns, Lana is gone, along with his mother's expensive Steuben glass egg.
Joel and Miles go to the Drake Hotel, where Jackie says Lana will be. Joel sees Lana, but only waves at her before leaving. As they are leaving, Lana asks Joel for a ride. As they sit in the car, Joel demands the egg back in exchange for the ride. Lana agrees, but as the discussion continues, the car is approached by Lana's pimp, Guido (Joe Pantoliano), who pulls a gun. Joel (in his father's Porsche) is chased in his car by Guido, but eventually escapes.
The next morning, Lana tells Joel that the egg is with the rest of her stuff at Guido's. Joel lets Lana stay while he goes to school. When he returns, his friends are over, and Lana has invited another prostitute, Vicky, to stay. They agree that the stay is only temporary. Later Lana mentions to Joel that "we should get your friends and my friends together. We'd make a lot of money." Joel rejects the idea.
That night, Joel, Lana, Vicky, and Joel's friend Barry (Bronson Pinchot) go out. They get stoned, and while Vicky and Barry wander away, Joel and Lana talk. Joel says something that Lana takes as judgmental, and she leaves. While retrieving her purse from the car, she accidentally bumps the shifter out of gear. Moments later, the car rolls down the hill where Joel has parked and onto a pier. The pier collapses, and his father's Porsche falls into Lake Michigan.
Joel takes the car to a repair shop. Later he goes to school and argues with the school registrar that if his absence is labeled as unexcused, he will fail two midterms. The confrontation causes him to be punished with a five day suspension and his expulsion from Future Enterprisers. Exasperated, he goes to visit Lana, and they are reunited.
Joel and Lana arrange a huge party, turning his parents' house into a brothel for a night. Joel describes arranging the event using the same terms as creating the product for his Future Enterprisers business.
The party is a huge success, and the house is packed with young men and prostitutes. However, Joel has forgotten that the interviewer from Princeton (Richard Masur) is still coming by to evaluate Joel. The interview is plagued by interruptions, and the interviewer does not seem impressed by Joel's resume, telling him: "You've done some solid work, but it's just not Ivy League now, is it?" After the interview, he stays at the party for a while, and is evidently well-treated by Lana's friends. Later, Joel gets a call from his parents, reminding him of their flight home. After the party, Joel and Lana go out and have sex on the Chicago 'L'.
The next morning, Joel finds his house has been burglarized. When he tries to call Lana, Guido answers. He tells Joel that he will let Joel buy back his furniture. Fortunately, Joel and his friends manage to get everything moved back in just as his parents walk in, though his mother notices a crack in her egg. Joel tries to make amends by doing some extra housework. While he is raking the lawn, his father appears and congratulates him: the interviewer was very impressed, and has indicated Joel will be accepted into Princeton.
Later, Joel meets Lana at a restaurant, and they speculate about their future. Joel ponders how their lives will be ten years hence; Lana responds "I think we're both gonna make it big. I'm very optimistic." As they walk, she tells him that she wants to keep on seeing him; he jokes with her that it will cost her, reenacting the earlier scene where Lana asks Joel for $300. The film ends with Joel's voiceover echoing Guido's earlier threat: "Time of your life, huh kid?"