Finian MeLonergan is an Irishman newly arrived from his native country with his spirited daughter, Sharon, and with a crock of gold he has "borrowed" from Og, a leprechaun*. Finian's fanciful theory of economics reasons that if the gold is buried in the fertile soil near Fort Knox, where the American government has its very own gold buried, it will fructify and all will prosper. Finian and Sharon settle in Rainbow Valley in the mythical state of Missitucky. Finian and the local hero, Woody, become business partners and the valley does seem to prosper. The sudden wealth and the news that gold has been found attracts the bigoted Senator Rawkins who decides to appropriate the land owned by Finian and oust the poor workers who live on it.
Meanwhile, Og, who has followed Finian from Ireland in the hope of recovering the gold, has fallen in love with Sharon and is now slowly becoming more of a mortal with each passing day. Sharon has, however, fallen for the handsome Woody and the entire situation in Rainbow Valley starts to get complicated. Finian's magic pot of gold has the power of granting three wishes and the first wish, inadvertently expressed by Sharon while standing over the spot where the gold is buried, turns the racist Senator into a black man. Og uses the second wish to bring speech to the pretty rnute, Susan, to whom he has transferred his affection.
The last wish turns the senator to his natural pale color thus protecting Sharon from being accused of witchcraft. With things back to normal, Sharon and Woody marry, the senator becomes tolerant, Og enjoys his mortal state, and Finian goes off in pursuit of yet another rainbow.