'Portico of Saint Paul's Church (not Wren's Cathedral but Inigo Jones Church in Covent Garden vegetable market)' – 11.15 p.m.
A group of people are sheltering from the rain. Among them are the Eynsford-Hills, superficial social climbers eking out a living in "genteel poverty", consisting initially of Mrs. Eynsford-Hill and her daughter Clara. Clara's brother Freddy enters having earlier been dispatched to secure them a cab (which they can ill-afford), but being rather timid and faint-hearted he has failed to do so. As he goes off once again to find a cab, he bumps into a flower girl, Eliza. Her flowers drop into the mud of Covent Garden, the flowers she needs to survive in her poverty-stricken world. Shortly they are joined by a gentleman, Colonel Pickering. While Eliza tries to sell flowers to the Colonel, a bystander informs her that a man is writing down everything she says. The man is Henry Higgins, a professor of phonetics. Eliza worries that Higgins is a police officer and will not calm down until Higgins introduces himself. It soon becomes apparent that he and Colonel Pickering have a shared interest in phonetics; indeed, Pickering has come from India to meet Higgins, and Higgins was planning to go to India to meet Pickering. Higgins tells Pickering that he could pass off the flower girl as a duchess merely by teaching her to speak properly. These words of bravado spark an interest in Eliza, who would love to make changes in her life and become more mannerly, even though, to her, it only means working in a flower shop. At the end of the act, Freddy returns after finding a taxi, only to find that his mother and sister have gone and left him with the cab. The streetwise Eliza takes the cab from him, using the money that Higgins tossed to her, leaving him on his own.
Higgins' home – the next day
As Higgins demonstrates his phonetics to Pickering, the housekeeper Mrs. Pearce, tells him that a young girl wants to see him. Eliza has shown up because she wishes to talk like a lady in a flower shop. She tells Higgins that she will pay for lessons. He shows no interest, but she reminds him of his boast the previous day. Higgins claimed that he could pass her for a duchess. Pickering makes a bet with him on his claim, and says that he will pay for her lessons if Higgins succeeds. She is sent off to have a bath. Mrs. Pearce tells Higgins that he must behave himself in the young girl's presence, meaning he must stop swearing, and improve his table manners, but he is at a loss to understand why she should find fault with him. Alfred Doolittle, Eliza's father, appears with the sole purpose of getting money out of Higgins, having no paternal interest in his daughter's welfare. He sees himself as a member of the undeserving poor, and means to go on being undeserving. With his intelligent mind untamed by education, he has an eccentric view of life. He is also aggressive, and when Eliza, on her return, sticks her tongue out at him, he goes to hit her, but is prevented by Pickering. The scene ends with Higgins telling Pickering that they really have got a difficult job on their hands.
Mrs. Higgins' drawing room
Higgins bursts in and tells his mother he has picked up a "common flower girl" whom he has been teaching. Mrs. Higgins is not very impressed with her son's attempts to win her approval because it is her 'at home' day and she is entertaining visitors. The visitors are the Eynsford-Hills. Higgins is rude to them on their arrival. Eliza enters and soon falls into talking about the weather and her family. Whilst she is now able to speak in beautifully modulated tones, the substance of what she says remains unchanged from the gutter. She confides her suspicions that her aunt was killed by relatives, and mentions that gin had been "mother's milk" to this aunt, and that Eliza's own father was always more cheerful after a goodly amount of gin. Higgins passes off her remarks as "the new small talk", and Freddy is enraptured. When she is leaving, he asks her if she is going to walk across the park, to which she replies, "Walk? Not bloody likely!" (This is the most famous line from the play, and, for many years after the play's debut, use of the word 'bloody' was known as a pygmalion; Mrs. Campbell was considered to have risked her career by speaking the line on stage.) After she and the Eynsford-Hills leave, Henry asks for his mother's opinion. She says the girl is not presentable and is very concerned about what will happen to her, but neither Higgins nor Pickering understands her thoughts of Eliza's future, and leave feeling confident and excited about how Eliza will get on. This leaves Mrs. Higgins feeling exasperated, and exclaiming, "Men! Men!! Men!!!"
Higgins' home – midnight
Higgins, Pickering, and Eliza have returned from a ball. A tired Eliza sits unnoticed, brooding and silent, while Pickering congratulates Higgins on winning the bet. Higgins scoffs and declares the evening a "silly tomfoolery", thanking God it's over and saying that he had been sick of the whole thing for the last two months. Still barely acknowledging Eliza beyond asking her to leave a note for Mrs. Pearce regarding coffee, the two retire to bed. Higgins returns to the room, looking for his slippers, and Eliza throws them at him. Higgins is taken aback, and is at first completely unable to understand Eliza's preoccupation, which aside from being ignored after her triumph is the question of what she is to do now. When Higgins does understand he makes light of it, saying she could get married, but Eliza interprets this as selling herself like a prostitute. "We were above that at the corner of Tottenham Court Road." Finally she returns her jewellery to Higgins, including the ring he had given her, which he throws into the fireplace with a violence that scares Eliza. Furious with himself for losing his temper, he damns Mrs. Pearce, the coffee and then Eliza, and finally himself, for "lavishing" his knowledge and his "regard and intimacy" on a "heartless guttersnipe", and retires in great dudgeon. Eliza roots around in the fireplace and retrieves the ring.
Mrs. Higgins' drawing room – the next morning
Higgins and Pickering, perturbed by the discovery that Eliza has walked out on them, call on Mrs. Higgins to phone the police. Higgins is particularly distracted, since Eliza had assumed the responsibility of maintaining his diary and keeping track of his possessions, which causes Mrs. Higgins to decry their calling the police as though Eliza were "a lost umbrella". Doolittle is announced; he emerges dressed in splendid wedding attire and is furious with Higgins, who after their previous encounter had been so taken with Doolittle's unorthodox ethics that he had recommended him as the "most original moralist in England" to a rich American founding Moral Reform Societies; the American had subsequently left Doolittle a pension worth three thousand pounds a year, as a consequence of which Doolittle feels intimidated into joining the middle class and marrying his missus. Mrs. Higgins observes that this at least settles the problem of who shall provide for Eliza, to which Higgins objects – after all, he paid Doolittle five pounds for her. Mrs. Higgins informs her son that Eliza is upstairs, and explains the circumstances of her arrival, alluding to how marginalised and overlooked Eliza felt the previous night. Higgins is unable to appreciate this, and sulks when told that he must behave if Eliza is to join them. Doolittle is asked to wait outside.
Eliza enters, at ease and self-possessed. Higgins blusters but Eliza isn't shaken and speaks exclusively to Pickering. Throwing Higgins' previous insults back at him ("Oh, I'm only a squashed cabbage leaf"), Eliza remarks that it was only by Pickering's example that she learned to be a lady, which renders Higgins speechless. Eliza goes on to say that she has completely left behind the flower girl she was, and that she couldn't utter any of her old sounds if she tried – at which point Doolittle emerges from the balcony, causing Eliza to relapse totally into her gutter speech. Higgins is jubilant, jumping up and crowing over her. Doolittle explains his situation and asks if Eliza will come with him to his wedding. Pickering and Mrs. Higgins also agree to go, and leave with Doolittle and Eliza to follow.
The scene ends with another confrontation between Higgins and Eliza. Higgins asks if Eliza is satisfied with the revenge she has brought thus far and if she will now come back, but she refuses. Higgins defends himself from Eliza's earlier accusation by arguing that he treats everyone the same, so she shouldn't feel singled out. Eliza replies that she just wants a little kindness, and that since he will never stop to show her this, she will not come back, but will marry Freddy. Higgins scolds her for such low ambitions: he has made her "a consort for a king." When she threatens to teach phonetics and offer herself as an assistant to Nepommuck, Higgins again loses his temper and promises to wring her neck if she does so. Eliza realises that this last threat strikes Higgins at the very core and that it gives her power over him; Higgins, for his part, is delighted to see a spark of fight in Eliza rather than her erstwhile fretting and worrying. He remarks "I like you like this", and calls her a "pillar of strength". Mrs. Higgins returns and she and Eliza depart for the wedding. As they leave, Higgins incorrigibly gives Eliza a number of errands to run, as though their recent conversation had not taken place. Eliza disdainfully explains why they are unnecessary and wonders what Higgins is going to do without her (in another version, Eliza disdainfully tells him to do the errands himself; Mrs. Higgins says that she'll get the items, but Higgins cheerfully tells her that Eliza will do it after all). Higgins laughs to himself at the idea of Eliza marrying Freddy as the play ends.