Teenage girl Dorothy Gale lives on a farm in Kansas owned by her Uncle Henry and Aunt Em. When Dorothy's Cairn Terrier Toto bites the wealthy Almira Gulch, Miss Gulch obtains a sheriff's order authorizing her to seize the dog to be destroyed. Toto escapes and returns to Dorothy, who runs away to protect him. Professor Marvel, a charlatan fortune-teller, tells Dorothy to go home because Aunt Em is heartbroken, and she returns just as a tornado approaches the farm. Unable to get into the locked storm shelter, Dorothy takes cover in the farmhouse and is knocked unconscious as the tornado lifts the house and drops it into an unknown land.

Dorothy awakens and is greeted by a good witch named Glinda, who floats down in a pink bubble and explains she is in Munchkinland in the land of Oz, and that the Munchkins are celebrating because the house landed on the Wicked Witch of the East. Her sister, the Wicked Witch of the West, appears in a puff of smoke; before she can seize her deceased sister's ruby slippers, Glinda magically transports them onto Dorothy's feet and tells her to keep them on, as they are powerful. Because the Wicked Witch has no power in Munchkinland, she leaves in another puff of smoke, but not before telling Dorothy, "I'll get you, my pretty, and your little dog too!" Glinda directs Dorothy as she floats away in another bubble to follow the yellow brick road that goes to the Emerald City, the home of the Wizard of Oz, as he might know how to help her return home.

Along the way, Dorothy meets the Scarecrow, who wants a brain; the Tin Man, who wants a heart; and the Cowardly Lion, who wants courage. The group reaches the Emerald City, despite the efforts of the Wicked Witch. Dorothy is initially denied an audience with the Wizard by his doorman, but the doorman relents after hearing that they were sent by Glinda, and the four are led into the Wizard's chambers. The Wizard appears as a giant ghostly head and tells them he will grant their wishes if they bring him the Wicked Witch's broomstick.

During their quest, Dorothy and Toto are captured by flying monkeys and taken to the Wicked Witch, but the ruby slippers protect her and Toto manages to escape, leading the Scarecrow, Tin Man, and Cowardly Lion to the castle. They free Dorothy, but are pursued by the Witch and her guards. They are cornered by the Witch, who sets fire to the Scarecrow, but when Dorothy throws a bucket of water onto the Scarecrow, she inadvertently splashes the Witch, causing her to melt away.

The Witch's guards gratefully give Dorothy her broomstick, and the four return to the Wizard, but he tells them to return tomorrow. When Toto pulls back a curtain, the "Wizard" is revealed to be an ordinary man operating machinery that projects the ghostly image of his face. The four travelers confront the Wizard, who insists that he is a good man at heart, but confesses to being a humbug. He then "grants" the wishes of Dorothy's three friends by giving them tokens that symbolize that they always had the qualities they sought after.

The Wizard reveals that he, like Dorothy, is from Kansas and accidentally arrived in Oz in a hot air balloon. He then offers to take Dorothy back to Kansas with him aboard his balloon, but after Toto jumps off and Dorothy goes after him, the balloon accidentally lifts off with just the Wizard aboard. Glinda reappears in her bubble and tells Dorothy she always had the power to return to Kansas using the ruby slippers, but had to find that out for herself. After sharing a tearful farewell with her friends, Dorothy heeds Glinda's instructions by tapping her heels three times and repeating the words, "There's no place like home." She is transported back to Kansas, where she awakens in her bed. She is attended to by her aunt, uncle and the farm hands. Professor Marvel stops by as Dorothy describes Oz, telling the farm hands and the Professor they were there too. As Dorothy hugs Toto, she gratefully exclaims, "There's no place like home!"