Elwood P. Dowd is an amiable but eccentric man whose best friend is an invisible, 6 ft 3+1⁄2 in-tall (1.92 m) white rabbit named Harvey. As described by Elwood, Harvey is a pooka, a benign but mischievous creature from Celtic mythology. Elwood spends most of his time taking Harvey around town, drinking at various bars and introducing Harvey to almost every person he meets, much to the puzzlement of strangers, though Elwood's friends have accepted Harvey's (supposed) existence. His older sister Veta and his niece Myrtle Mae live with him in his large estate, but have become social outcasts along with Elwood due to his obsession with Harvey.
After Elwood ruins a party Veta and Myrtle Mae had arranged in secret, Veta finally tries to have him committed to a local sanatorium. In exasperation she admits to the attending psychiatrist, Dr. Lyman Sanderson, that she sees Harvey every once in a while herself. Mistaking Veta as the real mental case, Sanderson has Elwood released and Veta locked up. Dr. Chumley, head of the sanatorium, discovers the mistake and realizes he must bring Elwood back, searching the town with orderly Marvin Wilson. With Veta's help, Chumley eventually tracks Elwood to his favorite bar, "Charlie's", and decides to confront him alone.