The film uses voice-over narration (the voice of Mildred). The story is framed by the questioning of Mildred by police after they discover the body of her second husband, Monte Beragon. The film, in noir fashion, opens with Beragon (Zachary Scott) being shot. He murmurs the name "Mildred" as he collapses and dies. The police are led to believe that the murderer is restaurant owner Mildred Pierce's (Joan Crawford) first husband, Bert Pierce (Bruce Bennett), who under interrogation confesses to the crime. She then relates her life story in flashback.
We see housewife Mildred married to a newly unemployed Pierce. Bert at the time was a real estate partner of Wally Fay (Jack Carson) who propositioned Mildred after learning that she and Bert were about to divorce. In the divorce, Mildred obtained custody of her two daughters: 16-year-old Veda (Ann Blyth), a bratty social climber and aspiring pianist, and 10-year-old Kay (Jo Anne Marlowe), a tomboy. Mildred's principal goal is to provide for eldest daughter Veda, who longs for possessions the family cannot afford. Mildred needs a job and the best she can find is as a waitress – a fact she hides from Veda.
One day, Veda gives their maid, Lottie (Butterfly McQueen), Mildred's waitress uniform, thinking nothing of it, until Mildred admits her employment as a waitress, infuriating Veda, who thinks it lowly. Kay contracts pneumonia and dies; to bury her grief, Mildred throws herself into opening a new restaurant on the coast (next to what appears to be the Santa Monica beach). With the help of her new friend and former supervisor, Ida (Arden), Mildred's new restaurant is a success. Wally Fay helps Mildred buy the property, and then it expands into a chain of "Mildred's" throughout Southern California.
Mildred continues to smother Veda in affection and worldly goods, but Veda is nonetheless appalled by Mildred's common background and choice of profession while becoming obsessed with money and materialistic possessions. Mildred goes as far as entering into a loveless marriage with the formerly wealthy Monte Beragon in order to improve her social standing to regain her estranged daughter. Beragon lives the life of a playboy supported financially by Mildred, much to Mildred's dismay and potential ruin. Mildred ends up losing the business thanks to Monte's manipulation and Veda's greed.
When Veda takes up with the scheming Monte, a showdown ensues at the beach house where the film began. We discover what really happened: that Veda, furious over Monte's unwillingness to marry her, is the one who shoots him. Mildred can cover for her daughter no more, and Veda is led off to jail. Before Veda leaves, she changes and says "I'll be alright." instead of saying what she usually says: " How could you?!", and gives Mildred a kiss on the cheek after realizing what Mildred has gone through to shower her with happiness. As Mildred leaves the police station, Bert is waiting for her.