In December 1941, American expatriate Rick Blaine owns a nightclub and gambling den in Casablanca. "Rick's Café Américain" attracts a varied clientele, including Vichy French and Nazi German officials, refugees desperate to reach the neutral United States, and those who prey on them. Although Rick professes to be neutral in all matters, he ran guns to Ethiopia in 1935 and fought on the Loyalist side in the Spanish Civil War.

Petty crook Ugarte boasts to Rick of letters of transit obtained by murdering two German couriers. The papers allow the bearers to travel freely around German-occupied Europe and to neutral Portugal. Ugarte plans to sell them at the club and persuades Rick to hold them. Before he can meet his contact, Ugarte is arrested by the local police under Captain Louis Renault, the unabashedly corrupt prefect of police. Ugarte dies in custody without revealing that Rick has the letters.

Then the reason for Rick's cynical nature—former lover Ilsa Lund—enters his establishment. Spotting Rick's friend and house pianist, Sam, Ilsa asks him to play "As Time Goes By". Rick storms over, furious that Sam disobeyed his order never to perform that song again, and is stunned to see Ilsa. She is accompanied by her husband, Victor Laszlo, a renowned fugitive Czechoslovak Resistance leader. A flashback reveals Ilsa left Rick without explanation when the couple were planning to flee as the German army neared Paris, embittering Rick. Laszlo and Ilsa need the letters to escape, while German Major Strasser arrives in Casablanca to prevent just that.

When Laszlo makes inquiries, Signor Ferrari, an underworld figure and Rick's friendly business rival, divulges his suspicion that Rick has the letters. Laszlo returns to Rick's cafe that night and tries to buy them. Rick refuses to sell, telling Laszlo to ask his wife why. They are interrupted when Strasser leads a group of German officers in singing "Die Wacht am Rhein". Laszlo orders the house band to play "La Marseillaise". When the bandleader looks to Rick, the latter nods, and Laszlo begins to sing. Patriotic fervor grips the crowd, and everyone joins in, drowning out the Germans. Afterwards, Strasser has Renault close the club on a flimsy pretext.

Later, Ilsa confronts Rick in the deserted café; when he refuses to give her the letters, she threatens him with a gun but then confesses that she still loves him. She explains that when they met and fell in love in Paris in 1940, she believed her husband had been killed attempting to escape from a concentration camp. Then she learned that Laszlo was alive and hiding near Paris. She left Rick without explanation to nurse her sick husband. Rick's bitterness dissolves. He agrees to help, letting her believe she will stay with him when Laszlo leaves. When Laszlo unexpectedly shows up, having narrowly escaped a police raid on a Resistance meeting, Rick has waiter Carl spirit Ilsa away. Laszlo, aware of Rick's love for Ilsa, tries to persuade him to use the letters to take her to safety.

When the police arrest Laszlo on a trumped-up charge, Rick persuades Renault to release him by promising to set him up for a much more serious crime: possession of the letters. To allay Renault's suspicions, Rick explains that he and Ilsa will use the letters to leave for America. When Renault tries to arrest Laszlo as arranged, however, Rick forces him at gunpoint to assist in their escape. At the last moment, Rick makes Ilsa board the plane to Lisbon with Laszlo, telling her that she would regret it if she stayed, "Maybe not today, maybe not tomorrow, but soon and for the rest of your life." Strasser, tipped off by Renault, drives up alone. When Strasser attempts to stop the plane, Rick shoots him dead. Policemen arrive. Renault pauses, then orders them to "round up the usual suspects." He suggests to Rick that they join the Free French in Brazzaville. As they walk away into the fog, Rick says, "Louis, I think this is the beginning of a beautiful friendship."