In a part of English high society where gossip runs rampant, a tangle of love has formed. Lady Sneerwell is in love with a young, rebellious man named Charles Surface. However, Charles is in love with Maria, as is his brother Joseph. Maria is in love with Charles, but Lady Sneerwell and Joseph plot to ruin this relationship through rumors of unfaithfulness on Charles' part. At the same time, an older man named Sir Peter Teazle has taken a young wife from the country, now called Lady Teazle; after only a few months of marriage they now bicker constantly about money, driving Lady Teazle to contemplate an affair with Joseph Surface.
The plot thickens when Sir Oliver Surface, the rich uncle of Joseph and Charles, returns to town from abroad. He schemes to test the rumors he has heard of Joseph being the well-bred and deserving brother and Charles having fallen into ruin; to do so, he goes to each of them in disguise. He disguises himself as a money lender named Mr. Premium to investigate Charles's spending habits, and is infuriated when he sees Charles living lavishly while driving the family far into debt. Charles proposes to sell him all he has left, the collection of family portraits, angering his uncle even more; however he forgives him when Charles refuses to sell the painting of his uncle.
The tangle of love and rumors becomes clear when, while Lady Teazle is visiting Joseph Surface, her husband comes to call. Lady Teazle hides behind a screen and listens to their conversation. Then, Charles Surface comes to call on his brother as well; Sir Teazle, hoping to see whether Charles is having an affair with his wife as has been rumored, also tries to hide behind the screen. He sees what he thinks is simply a young woman Joseph has been trying to hide. Sir Teazle hides in the closet instead, but when Charles starts to talk about Joseph's relationship with Lady Teazle, Joseph reveals that Sir Teazle is hiding in the closet, and Charles pulls him out. When Joseph goes out of the room momentarily, Sir Teazle tells Charles about the young woman he thinks is hiding behind the screen, and they pull it down to reveal his wife.
Sir Oliver visits Joseph dressed as one of their poor relations looking for money. Sir Oliver is disappointed to find that Joseph is only kind on the surface, but will not do anything material to help his relative.
The play ends with Sir Oliver revealing his plot and his findings to Charles and Joseph. Everyone realizes that Lady Sneerwell and her servant Snake orchestrated the rumor about Charles and Lady Teazle.