Upper-crust executive Louis Winthorpe III (Dan Aykroyd) and down-and-out hustler Billy Ray Valentine (Eddie Murphy) are the subjects of a bet by successful brokers Mortimer (Don Ameche) and Randolph Duke (Ralph Bellamy). An employee of the Dukes, Winthorpe is framed by the brothers for a crime he didn't commit, with the siblings then installing the street-smart Valentine in his position. When Winthorpe and Valentine uncover the scheme, they set out to turn the tables on the Dukes.

After record producer Swan (Paul Williams) steals the music of songwriter Winslow Leach (William Finley) and gives it to one of his bands, Leach sneaks into Swan's offices. Catching Leach, Swan frames him for dealing drugs, which lands him in prison. After Leach breaks out and again attempts to sabotage Swan's empire, an accident crushes his face. Leach then dons a costume and becomes the Phantom, intent on ruining Swan while saving singer Phoenix (Jessica Harper) from a terrible fate.