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In the kingdom of Ruthania, as Lili Wieler nervously dresses for a job singing at a cafe, which she has never done before, she is enthralled by a radio ad touting the luxurious features of the huge Bing-Bang town car, which has been sold to the King.  Her wisecracking landlady, Mama Watcheck, to whom she owes rent money, mildly rebukes her for placing love above financial security as she complains that Lili has refused the entreaties of a butcher and a baron.

As the King's chauffeur Stigmat drives to the Volk's Garden, Lili struggles through a song for which she was unprepared.  Her song is disrupted and Weininger, the owner, fires her.  Stigmat, who takes a liking to Lili, implies that she is the king's favorite singer and gives her a ride home.  Rumors quickly spread about a romance between Lili and the King, and the next day, King Rupert, who prefers composing love songs to being a monarch, learns of the rumors.

The country is faced with a financial crisis and, although Rupert hopes that an expedition of geologists seeking to find oil in the plains of Malu will succeed, he reluctantly agrees to marry Princess Isabella of Moravia to balance the budget should the expedition fail.  When Weininger brings gifts to convince Lili to come back to his cafe, Mama Watcheck, having heard the rumors, acts as her manager and calls the police to locate Lili, who is searching for work.

The police escort her to the Volk's Garden, where she discovers that everyone thinks she is the king's mistress.  Mama Watcheck talks her into singing again, and she is a big success.  Afterwards, Rupert comes into her dressing room through a window and, after introducing himself as Captain von Linden, the man who wrote the song she just sang, he teaches her a new song.  He flirts with her, calling the King a dull fellow with no flair; although she is attracted, she resists him.  However, after Rupert steals a kiss, he says he knows she loves him because her lips betray her.  At night as she prepares for bed, Rupert again enters her room through her window and encourages her to be unfaithful to the King.  Although she is falling in love with him, she tricks him into leaving and then locks him out.

The next day, Rupert agrees to marry the princess to save the country, but orders Stigmat to bring Lili to the palace.  As a crowd awaits the King's announcement that he has balanced the budget, Lili is taken to the King's bedroom, and when Rupert enters, she hides under the bed.  He then finds her, and Lili, frightened and still unaware of his real identity, hugs him and confesses that she has never even seen the King.  Rupert finally reveals that he is the King and says that he loves her and that he is willing to give up everything for her.  She does not believe him, and they wrestle on the floor before he makes her say "uncle," whereupon he is able to kiss her.  The Queen Mother interrupts them to report that because of the rumors, the princess has refused to marry Rupert and has run off to Paris with a tango dancer.  Just then a telegram arrives stating that oil in great quantities has been found in Malu.  Rupert, with Lili by his side, reads the message to the people and introduces Lili as the countess of Malu, his bride-to-be.