Babes in Arms opens in Seaport, Rhode Island in the 1930s. Val and Marshall's vaudeville parents leave them behind to do the circuits. Val then meets Billie, a girl who has driven from the coast, only to have her car break down. They then sing a love song about how they feel as though they have met before (Where or When).
The Sheriff then visits them to inform them that they have to work at the work farm because they are not yet 21. They then decide that they will stick around instead and find another way to support themselves (Babes in Arms). The “kids” form a group with Val as the leader. After deciding nothing, except that violence is good, they disperse. Dolores, the Sheriff's daughter, talks to Gus, her ex, who tries to woo her, failing. They then sing and flirt about how they do not care that their relationship is over (I Wish I Were in Love Again).
Marshall then arrives, jealous. Then Val enters mentioning that he has also kissed her, a fight begins and escalates when others enter. The sheriff comes in and the kids pretend to be dancing. This causes Val to decide to put on their own follies. The Sheriff decides to give them two weeks to put on the show (Babes in Arms Reprise).
Later, Val enters and tells Irving and Ivor to practice their number (Light on Our Feet). Lee then arrives and chastises his brother, Beauregard, for hanging out with “the blacks”. Billie then uses her womanly guiles to convince Lee to invest his money in the show. Lee then smears some of her lipstick on his cheek and convinces the boys that she kissed him. They then bring on “Baby Rose” a former child star to be in their show who performs a number she learned (Way Out West).
Billie then enters with a jealous Val. After calming him, they discuss the show. Lee does not want Irving and Ivor in the show, After learning this, Val leaves in a huff. Billie reflects on her romance with Val (My Funny Valentine). They transition into the day of the show and show the final number of the follies performed by Baby Rose (Johnny One Note). Backstage, Lee and Val fight over letting Irving and Ivor go on despite their race. Val punches Lee and Irving and Ivan go and do the big dance finale (Johnny One Note Ballet).
Act 2 opens on the gang sitting despondently trying to cheer each other up because they are at the work farm (Imagine). Val comes in and calls them away to lunch, staying behind to inform Billie that his parents will be away for 3-4 more months. They talk and Val mocks Billie's beliefs on luck and her immaturity (All at Once).
For the gang's first night off, the sheriff is throwing a party in a field on Val's property. The former communist Peter enters, having won money in a raffle, and proclaims that he is to travel the world and not share his money to which the gang is upset (Imagine Reprise). Cut to a surprisingly long ballet dream sequence of his travels (Peter's Ballet). Continuing pre ballet he decides to invest the money (Imagine Reprise 2). Later at the party, the Sheriff attempts to make good with the kids. Billie tells Val that she plans on leaving The Farm for the road. Val insists on going with her before being called back to the kitchen. Billie sings about how she doesn't mind driving around. She also talks about how she likes living on her own terms (Lady is a Tramp).
Peter returns to the party informing the crew that he lost all the money. The gang leaves following the radio for news of a cross atlantic flight and Deloris tells Gus that she will come work on the farm to be with him. He reacts by telling her how she doesn't return his affections and drags him along (You are so Fair). After pretending to not care about each other they admit that they like each other.
The gang re-enters and listen to the radio. They realise the Aviator must make a forced landing, and in their field no less! After much scrambling, they call the airport to get reporters to come, and Val decides to impersonate the aviator. The reporters believe his impersonation and the city decides to throw the aviator a party. After concocting a scheme, Billie takes control of the unconscious and tied up aviator and relishes the fact that the gang treats her as an equal (Lady is a Tramp Reprise).
At the party, the gang repeatedly interrupts the mayor introduction of the Aviator to delay the Aviator's speech. Performing a variety of musical numbers (Specialty: You are so fair, Imagine, My Funny Valentine, Light on Our Feet, and Lady is a Tramp). After The Aviator successfully does the speech the entire chorus performs a rousing closing number (Finale Ultimo).