Danny and his friends go off to various branches of the military during World War I, and afterward, they return home to Monterey, California, specifically their neighborhood of Tortilla Flat. When Danny gets home, he finds out that his grandfather has died and left him two houses. He rents one of them to his friend Pilon, who is a clever con artist. The two friends spend their days stealing wine, getting drunk, fighting, and making up.
Pilon will never pay rent, but he decides to get a roommate, his friend Pablo, and try to get him to pay the rent. It's a nice try, but it doesn't work, because Pablo has no money. Oops. So Pilon and Pablo decide to get a third roommate, Jesus Maria Corcoran, and get him to pay the rent to Danny. They send Jesus Maria off to find food and money while they chill in the house.
One night, the three pals get drunk and pass out with a candle burning. It burns down the house, so they all have to go and live with Danny in his house. They promise to bring him food and wine every day in exchange for staying there, and he says they can have the run of the house except for his bed, which is off-limits.
The friends' next victim—er, comrade—is the Pirate, a crazy guy who sells firewood and is always accompanied by a pack of mangy dogs. They know he must be rich because he makes a quarter a day and never spends a penny, but they can't find his treasure. They decide to make friends with him and figure out where he keeps his stash, but they find out that he is saving to buy a candle for Saint Francis to keep a promise he made when his dog was sick and Saint Francis cured it.
Now the friends—who do have some honor—feel like they have to help the Pirate buy his candle, so he moves in with them, dogs and all. On St. Andrew's Eve (November 29th), Pilon goes out into the forest to search for treasure.
Supposedly, on that night the treasure will glow, which is pretty handy if you're out in the middle of the night digging for treasure. Pilon and his friend Big Joe Portagee find a blue light, but when they dig in that spot the next morning, they just find a survey marker, which is a metal disk buried in the ground to help with surveying. Not exactly a treasure.
Big Joe steals the Pirate's stash of quarters from under Danny's pillow, and the friends teach him a painful, violent lesson for doing so. Big Joe gives the money back it back, and they count it to find out they finally have enough for the golden candle. They do.
The Pirate buys the candle from the priest, who tells everyone in church about it. The Pirate's dogs burst into the church, embarrassing the Pirate. Later, though, they see Saint Francis standing behind the Pirate (he's pretty sure, anyway), so he thinks they're forgiven.
The friends spend their days romancing women, stealing wine and food, and telling stories, but after a while, Danny gets depressed and misses the wild life he had when he was homeless. He runs off, and the friends worry about him.
The friends decide to throw a party to cheer Danny up, but it turns into Danny's last hurrah. He gets wildly drunk, fights all the men and loves all the women, and finally runs out into the night... and off the edge of a cliff.
He dies, and the friends, who don't have nice clothes, have to watch the funeral from outside the graveyard. They go back to his house to drink wine, and a spark from the fireplace sets the house on fire. The friends know that this is the end: they let the house burn, then all walk off in different directions.