The post World War Two era saw the birth of a new teen identity. These Bobby Soxers and Greasers had their own fashion, slang, and music. The movie Grease (which is based upon the Broadway hit musical) celebrates this teenage culture.

Greaser Danny Zuko (John Travolta) falls in love with wholesome and pure Sandy Olson (Olivia Newton-John) at the Beach over the summer. They believe they are saying goodbye as Sandy returns to her native Australia when the summer is over.

Fast forward to the first day of school at Rydell High School. Sandy is trying to make friends with the Pink Ladies, a rough group of girls. She tells them about her "summer nights". Danny tells a racier version to his Greaser friends, who are a gang known as The T-Birds. The Pink Ladies giggle when they learn that Sandy's Prince Charming is their friend, Danny Zuko.

The Danny they know is not innocent. He has dated most of the girls at the school, including Rizzo (Stockard Channing). A jaded Rizzo is anxious to show Sandy the real Danny and arranges for them to reunite at a High School Pep Rally in front of the T-Birds. Rizzo knew that Danny would "play it cool" in front of his friends. Sandy is devastated. What happened to the Danny Zuko that she met at the beach? Danny shows a second of remorse and then continues on with the guys.

Frenchy (Didi Conn) tries to cheer up Sandy and invites her to a slumber party. Frenchy announces that she is dropping out of Rydell to attend beauty school. She offers to pierce the girl's ears, which does not end well for Sandy. Rizzo finds Sandy's innocence annoying and makes fun of her. Marty (Dinah Manoff) writes a letter to a Marine pen pal. A hurt Sandy ends up in the back yard swearing that she is "hopelessly devoted" to Danny's face in a kiddie pool.

Rizzo and Kenickie (Jeff Conway) are now an item in the back seat of Kenickie's car. A member of a rival gang interrupts them and damages Kenickie's car. The boys work together to fix the car. They dream of what "Greased Lightening" will look like and do for them when she is all fixed up.