With regret, Veta Simmons (Josephine Hull) decides to have her affable brother Elwood P. Dowd (James Stewart) committed to an asylum. His drinking and his unshakeable delusion of Harvey, a six-foot rabbit who is his constant companion, are interfering with her plans to find her daughter a suitable mate.
The young doctor is a psychiatric zealot, and when Veta claims that she is so fed up that she can sometimes "see that rabbit," he cleverly commits her instead. The error is discovered and rectified, but the gentle manners of Dowd (and his rabbit) eventually convince the young doctor, his nurse, their boss, and even Veta herself that he does not deserve to be locked up. They release him at the very moment he is about to receive a new chemical treatment guaranteed to rid him of the delusion. Dowd happily sets out to share the rest of his life with Harvey.
