Midaq Alley follows several characters who all live along and in the titular alley. It is set in the 1940's, during World War II, when the British army is stationed in Cairo.
Midaq Alley is a poor side street in Cairo which consists of a few shops and homes. Many of the alley's male inhabitants congregate every night at Kirsha's café. Abbas, the barber, is very close friends with Uncle Kamil, the chubby proprietor of the sweet-shop. Mrs. Saniya Afify is the middle-aged, widowed landlady of a three-apartment house in Midaq Alley. One of her tenants is Umm Hamida, a marriage broker who lives with a foster daughter, the young and beautiful Hamida. One day, Mrs. Saniya Afify tells Umm Hamida, a matchmaker, that she wants to get re-married, and asks Umm Hamida to help her find a man.
Meanwhile, Hamida is frustrated by the lack of eligible men in Midaq Alley. Even though Abbas has long been madly in love with her, she dreams of a wealthy husband who could take her away from the shabby alley. Abbas loves Midaq Alley, but his friend Hussain Kirsha encourages him to take advantage of the opportunities for wealth provided by the war. Hussain has been working for the British Army, and he convinces Abbas that only by making money will he attract someone like Hamida.
Mr. Kirsha's weaknesses for hashish and young boys are well known around Midaq Alley. He has recently been frequenting a small shop where a young salesman has caught his fancy. He invites the young man to his cafe. His wife, Mrs. Kirsha, knows about her husband's dalliances but is helpless in the matter.
There is a bakery on Midaq Alley operated by the forceful Husniya and her cowardly husband, Jaada. They rent a small outbuilding to a man named Zaita, who is a cripple-maker. He cripples beggars so that they can beg more profitably. Dr. Booshy, the dentist of Midaq Alley, who has no medical training but succeeds because of his low prices, often works with Zaita by bringing him recruits.
Salim Alwan is a wealthy businessman who operates a business on Midaq Alley. His company is profitable, even during the wartime, partially because he operates on the black market. He has a healthy sexual appetite, which he maintains through a husked wheat lunch he eats every day, and which acts as an aphrodisiac. As his wife grows older and is less able to keep up with his sexual demands, he has begun to lust after the young Hamida.
Mrs. Kirsha decides to confront her husband about his newest conquest, and they have a terrible fight. Meanwhile, Abbas decides to confront Hamida to confess his feelings. Despite her aggressive rebuffs, she finally grants him a private audience, and he explains that he will soon seek employment with the British Army to make money for her. Impressed, she unwittingly agrees to an engagement.
Mrs. Kirsha asks Radwan Hussainy, an alley resident renowned for his piety and wisdom, for help with her husband's situation. Hussainy agrees to speak to Kirsha about his tendencies, but Kirsha ignores Hussainy's warnings. Frustrated, Mrs. Kirsha barges into the café one night and physically attacks the young salesman.
After formalizing his engagement to Hamida, Abbas prepares to leave for a 1-2 year stint with the army. On the night before he leaves, Hamida allows him to kiss her goodbye. Meanwhile, Hussain Kirsha grows jealous to see his friend leave while he is again stuck in the alley. The news of his father's latest scandal is the final straw, and he leaves his parent's home and Midaq Alley after a violent argument.
Umm Hamida finally finds a man for Mrs. Saniya Afify. His name is Ahmad Effendi Talbat, and he is a 30 year old civil servant, 10 years his potential bride's junior. Though he refuses to pay a dowry and requires a photo of her, Mrs. Afify is overjoyed.
Soon thereafter, Salim Alwan decides to ask Hamida to become his second wife. When he asks Umm Hamida for permission, she is shocked that such a wealthy many would want a wife so clearly his social inferior. Both she and Hamida are depressed by the girl's engagement to Abbas, which obligates her to deny Alwan. However, they decide to accept Alwan's engagement nevertheless. Unfortunately, when Umm Hamida returns to Salim Alwan to deliver the news, she learns that the man has suffered a terrible heart attack. Though this marriage is no longer a possibility, Hamida has realized she cannot consent to marry a poor man without ambition like Abbas.
Ibrahim Farhat, a politician, holds a rally in Midaq Alley. During the celebration, Hamida sees a middle-class man watching her. She feels an immediate connection with him, but is perturbed when he begins to visit Kirsha's café so he can look up at her window. Eventually, they meet on one of her daily walks. He claims to be madly in love with her, which both excites and horrifies her. She denies him, but quickly starts to reconsider her feelings.
Mrs. Saniya Afify visits Dr. Booshy for a new set of gold teeth, knowing his prices are the lowest in Midaq Alley. Meanwhile, Salim Alwan eventually recovers and returns to work, but he is now paranoid and depressed, constantly anxious about his own death. He is a changed man, and no longer thinks it a good idea to pursue Hamida.
Hamida has other things on her mind. Her confident new suitor reveals his name: Ibrahim Faraj. He takes her to the wealthy part of town, where he lives in a beautiful home. There, she is impressed by the promise of a better life. However, she soon discovers that he does not want to marry her - instead, he wants to train her as a high-class prostitute. Despite an initial protest, Hamida eventually moves in which him, where she is trained to learn English, to dance, and to market herself. She develops a new identity as Titi, the name Faraj gives her. All the while, she remains fooled that he actually loves her.
Hussain Kirsha returns to his family's home with a wife and brother-in-law in tow. He has been laid off because the war is coming to an end. His father is initially furious to see him, but once he sees and is attracted to Hussain's handsome brother-in-law, he lets them stay.
One night, Dr. Booshy brings Zaita news of a man with gold teeth, who has recently died. It becomes clear that they rob graves to collect valuables. In attempting to rob the grave, they are caught. When the news spreads through Midaq Alley, Mrs. Saniya Afify rips her teeth from her mouth and faints. Luckily, her new husband is there to help her.
Abbas returns to Midaq Alley on a short leave from the British Army. Uncle Kamil has the unfortunate responsibility of telling his dear friend about Hamida's unfortunate disappearance. Abbas is initially depressed, but when he learns from some of her friends outside the alley that she might have left with another man, he grows intent on revenge. He begins to drink, at Hussain's urging. After a few drinks one day, they wander the city, and notice a beautiful, scantily-clad woman in a carriage. Abbas recognizes her as Hamida, and chases the carriage. She had recently fled Faraj's house in anger, after realizing that his professions of love were all a ruse to ensnare her. When Abbas catches her, she is initially angry but realizes she can use him to punish Faraj. She claims Faraj forced her into her new life, and when she sees Abbas grow angry, tells him where Faraj will be on the next Sunday. She expects him to make a scene, but not to actually kill the pimp; after all, Abbas is known for his gentleness.
Back in Midaq Alley, Radwan Hussainy prepares for a pilgrimage to Mecca and Medina. He offers parting words of wisdom to everyone, especially to Abbas. Abbas ignores his sage advice, and tells Hussain Kirsha what he has learned and what he has planned. Though Hussain is dubious of Abbas's plan, he accompanies his friend to the bar where they will later seek Faraj, simply hoping to case it. There, Abbas sees Hamida seductively flirting with a group of British soldiers. Fuming, he throws a beer glass in her face, cutting her terribly. The British soldiers react immediately by beating Abbas to death.
This tragedy leaves a pall over Midaq Alley, but life slowly returns to normal. Hamida starts to recover, and resumes a relationship with her foster mother. A new family moves into Dr. Booshy's former apartment. As Radwan Hussiny's return date approaches, the alley falls back into its old rhythm.