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Honoré Lachaille explains that in turn-of-the-20th-century Paris, marriage is not the only option. His nephew Gaston is a rich bon vivant, much like his uncle. But Gaston is bored with the high life and his series of mistresses. The one thing he truly enjoys is spending time with an old friend of his uncle, Madame Alvarez, whom he calls Mamita, and especially her granddaughter, the precocious, carefree Gilberte or "Gigi". Gaston's Uncle Honoré was involved romantically with Mamita, although advancing age has confused their recollections of the past.
Madame Alvarez sends Gigi to her Aunt Alicia's to learn to be a high-society courtesan in their family's tradition. Gigi is initially a very poor student, as she does not understand the reasons behind her education and finds Parisians' obsession with making love inexplicable. She does, however, enjoy spending time with Gaston, whom she treats as an older brother. Alicia is unhappy to discover that Gaston took Gigi and Madame Alvarez on holiday, as her sister had not consulted her. She insists that Gigi's education must increase dramatically if she is to catch a prize such as Gaston. Mamita is shocked, but sees the advantages it could bring Gigi and so goes along with the plan - though neither tells Gigi of their scheming. Gigi is miserable in her lessons, but puts up with them as a necessary evil, though she still seems awkward and bumbling to her perfectionist aunt.
Gaston visits and is shocked to see Gigi in an alluring white gown. He tells her she looks ridiculous and storms out, but returns later and apologizes, offering to make it up by taking her to dinner. Mamita refuses, telling Gaston that, with his reputation, a young girl seen in his company might be labelled in such a way as could damage her future. Gaston is enraged again, storms out, and wanders the streets of Paris in a fury.
Gaston realises that he has fallen in love with Gigi. He returns to Mamita and strikes a business arrangement to take Gigi as his mistress, promising to provide the girl with luxury and kindness. He visits Gigi later, but she tells him she does not wish to become someone's mistress; she wants more for herself than to be passed between men, only desired until they grow tired of her and she is moved on to another. Gaston is horrified at this portrayal of the life he wishes to give her, and leaves stunned. Later, however, Gigi contacts him; when Gaston returns, Gigi says she would "rather be miserable with [him] than without [him]."
Later that night Gigi emerges from her room prepared to accept her fate and take up her role as Gaston's mistress. For the first time, she appears as a woman, not a young girl. Gaston is enchanted when he picks Gigi up to take her to dinner at Maxim's, a popular Paris restaurant. Gigi's awkwardness is gone and she seems perfectly at ease. Nevertheless, patrons' stares make Gaston uncomfortable as he realises Gigi's interpretation of things may have been accurate after all. He discovers that his love for her makes the idea of her as his mistress an unbearable one. Angered by Honoré's comments, Gaston leaves the party with Gigi in tow, taking her home without explanation. A weeping Gigi begs to know what she has done to offend him, but Gaston does not answer until he arrives at Mamita's and humbly asks for Gigi's hand in marriage.
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