It is 1984 in Durham, in northern England, and the coal miners have just gone on strike. Coal mining is the dominant industry of the area, and the possibility of privatization and the closure of the pit have led the union to a strike vote. The miners believe as long as they stick together, they can win (Stars Look Down). There's a great deal of enthusiasm and optimism, though it doesn't seem to be shared by 11-year-old Billy, whose father and brother both work in the mine.
Despite the hard times, Billy's dad gives him 50p a week to take boxing lessons at the local gym. Billy shows up late one day, and so is made to stay behind and work on his own. When he's done, he's to give the keys to a Mrs. Wilkinson. Billy has no idea who that is, until a ballet class arrives at the gym. He tries to give her the keys, but she won't have him interrupting her class, and tells him to either go away or join in. Billy decides to give it a try, and finds himself drawn to it as Mrs. Wilkinson leads the class in a dance (Shine).
At home, the strike is taking its toll. Billy's mom has passed away, so the small house is shared by Billy, his dad and brother, and his elderly grandmother, who is a little forgetful. While the men go out to the picket line, Grandma tells Billy how she would live her life differently were she given another chance (Grandma's Song). Billy decides to keep going to dance classes, without telling his family.
There are clashes between the strikers and police who have been brought in to keep the peace. This conflict is set against the dance classes that Billy attends, where he soon stands out. Mrs. Wilkinson notices his talent, and starts to pay more attention to him (Solidarity). Meanwhile, Billy's dad discovers that Billy hasn't been going to boxing after all, and finds his son at the ballet class. Despite Mrs. Wilkinson's objections, Billy is dragged out of class, and told he can never go back.
Frustrated, Billy seeks out his friend Michael for some advice. He's more than a little surprised to find Michael at home alone, wearing a dress! Michael confirms that he likes to dress up in women's clothing, and gives Billy some stuff to try on. Billy reluctantly agrees, as Michael explains that there's nothing wrong with being yourself (Expressing Yourself), and if Billy really wants to dance, he shouldn't let anything stop him.
Billy seeks out Mrs. Wilkinson, who tells him that she believes he's good enough for the Royal Ballet School, and she's willing to work with him privately to get him ready for the audition. They meet in the gym in the evening, and she asks Billy to bring along items that are meaningful to him, so they can figure out what kind of dance he should do. One of the things Billy brings is a letter that him mother wrote to him before she died (The Letter).
Mrs. Wilkinson is touched and tries to show Billy that dancing should come from the inside, not just from steps that you're taught. With the help of Mr. Braitwaite, they work on the dance (Born to Boogie).
Unfortunately, things at home aren't going so well. There has been some violence with the strike, and Billy's dad and brother are often arguing about it. The day of the audition arrives, but they refuse to let Billy leave the house. Mrs. Wilkinson comes to the house to find out why Billy didn't show up, and she reveals to his family that he was supposed to be auditioning. They are stunned, and once again forbid Billy to dance, sending Mrs. Wilkinson away. Billy is devestated (Angry Dance).
It's Christmas time, and though there's not much to be cheerful about, the union puts on a dinner and show. The subject of the pageant is a scathing Christmas wish for the head of the government (Merry Christmas, Maggie Thatcher). After the show, Billy's dad is encouraged to sing a song, but instead of a rousing tune, he sings the melancholy Into the Ground.
Billy and Michael sneak into the gym, and Michael is thrilled to find a tutu he can wear. He leaves, and Billy begins to dance. He is joined by an older version of himself, as they perform an exquisite pas-de-deux. Billy's dad walks in on this performance, and finally realizes how talented Billy is. He goes to see Mrs. Wilkinson, to find out if there is still a chance for Billy to audition. She says he would have to go to London, and offers to pay for the costs, but Mr. Elliot won't take any money.
Instead, he decides to join those who are crossing the picket line, to earn the money himself. When his son, Billy's brother, sees him on the other side of the line, he breaks through to try to bring him back. Billy's dad explains that he's doing this for Billy, to give him his chance (He Could Be a Star). The other miners come together and say they will find a way to help Billy, without crossing the line.
Both Billy and his father are overwhelmed by the Royal Ballet School when they arrive for the audition. Feeling uncertain and frustrated after his audition, Billy lashes out at another boy. This seems to erase any chance of him being accepted, but both he and his father are interviewed by the panel about why Billy wants to go to the school. One of the adjuticators asks Billy how he feels when he dances, and Billy tries to explain (Electricity).
Finally the letter arrives with panel's decision, and the family manages to wait until Billy gets home before opening the letter. Billy takes it to his room, opens it and reads it. He comes back downstairs, throws it away and says he didn't get in. The family try to take it in stride until his brother looks at the letter and realizes that he did get in after all! They are all celebrating when some of the miners come to the door with the news - the strike is over. The union has lost, and they are going back to work. (Once We Were Kings)
Billy says his goodbyes to the people close to him, to his dad, to Mrs. Wilkinson, and to Michael. He also says goodbye to his mom, realizing that his new life is about to start, and he will have to move on alone now (The Letter - Reprise). He leaves for London.