Karen Wright and Martha Dobie are the head mistresses of a small private school for girls.  Their major disciplinary problem is 12-year-old Mary Tilford, the granddaughter of the town's most influential citizen.  When the child is punished for telling a lie, she runs to her grandmother and tells another—and much more devastating—lie from which it may be inferred that the two teachers are having an "unnatural" relationship.   Although Mary herself only dimly understands what she has said, the effect upon her shocked grandmother is obvious; and Mary elaborates upon her story.

Horrified, Mrs.  Tilford takes Mary out of the school and urges other guardians and parents to do the same.  Karen and Martha, forced into taking drastic action, bring a slander suit against Mrs. Tilford but lose the much-publicized case when their chief witness, Martha's irresponsible Aunt Lily, deserts them under pressure and refuses to testify in their behalf.  Not only is the school destroyed, but Karen realizes that Mary's lie has even created doubts in the mind of her fiancée, Dr. Joe Cardin.

After she has released him, Karen suggests to Martha that they go away somewhere to make new lives for themselves.  But the scandal has brought to Martha the terrible realization that the child's lie has uncovered a suppressed emotion, and she hysterically confesses her love for Karen.  Then, sick with despair, she hangs herself.  The vicious lie is eventually exposed, but for Karen it is too late; following Martha's funeral, she walks silently past Joe, Mrs. Tilford, and the other repentant townspeople.