In 1761, while driving through London, Lord Mortimer and his mistress, actress Nell Bowen, are stopped outside St.  Mary's of Bethlehem Asylum, a notorious mental institution known as "Bedlam." Earlier, a poet named Colby was shoved from Bedlam's roof while trying to escape, and Lord Mortimer, his patron, is notified of his death.  Curious, Lord Mortimer questions Bedlam's head warden, George Sims, about Colby's fall.  After insisting that Colby's demise was an accident, the smooth-talking, sadistic Sims convinces Mortimer to use some of Bedlam's inmates to replace the poet as the entertainment at his upcoming banquet.

Disgusted by Sim's suggestion that his "Bedlamites" will make a fine amusement, Nell decides to visit the asylum before the fete .  Nell is horrified by the suffering and depravation she sees in Bedlam and hits Sims in anger.  The blow is witnessed by William Hannah, a Quaker stonemason, whom Sims had previously tried to engage in fraud.  Although the peace-loving William applauds Nell for her compassion, the actress coldly insists that she struck Sims out of annoyance, not pity.

At the banquet, Sims forces his frightened wards to perform for Mortimer's guests, and one young patient dies as a result of the gilding that Sims has painted on his skin.  Once again, Nell's ire is provoked, and she later accepts William's advice to use her influence with Mortimer to improve conditions at Bedlam.  Although the slow-witted Mortimer at first agrees to Nell's suggestions, Sims changes his mind by reminding him that the reforms will cost him £500 in taxes.  After Nell breaks with Mortimer, he evicts her from her home and confiscates most of her belongings.  Nell counters by placing her parrot, who loves to recite an unflattering poem about Mortimer, for sale in a public market.  When Nell refuses to sell the parrot to Mortimer for a reasonable sum, he follows Sims's advice to place a writ of seizure against the bird.

Backed by William, Nell rejects Mortimer's writ and then goes to see Mortimer's political opponent, "That Devil" John Wilkes, about the situation.  Worried about Wilkes's potential involvement, Sims and Mortimer try to bribe Nell, but she laughingly eats their proffered bill.  Sims and Mortimer then force Nell to appear before the Commission of Lunacy, of which Mortimer is a member, and she is found insane and thrown into Bedlam.  William eventually discovers her whereabouts and sneaks into the asylum to see her.  Nell tells William to find Wilkes and begs him to give her his masonry trowel as a means of protection.

While William tracks down Wilkes, Nell is befriended by Bedlam's "pillar," a trio of educated inmates.  After she is mocked by Sims for associating with Bedlam's "aristocracy," Nell determines to help all of the asylum's afflicted through simple kindnesses.  Sims punishes Nell's deeds by throwing her in a cell with a large, violent inmate known as "Tom, the Tiger," but Nell's belief in Tom's goodness saves her from attack.

William and Wilkes, meanwhile, arrange a new hearing for Nell.  The day before the Commission is to reconsider her case, however, Sims declares that Nell must be given his "cure." Sure that Sims intends to kill Nell, the other inmates attack him, and Nell escapes with Tom's help.  Sims is then "tried" by his charges, but is eventually found sane.  As he is about to be released, however, a beautiful mute stabs him with Nell's trowel, and the inmates cover the attack by enclosing him in a wall while still alive.

William and Nell return to Bedlam with the Commission, and although they both deduce Sims's fate, they choose to remain silent.