Lodo Varese steals $40 million from the Vatican, and loses another $600 million due to bad business dealings. Cardinal John Flaherty is kicked out of the Papal Committee, preventing him from ever becoming Pope, due to his business dealings with Varese and Don Appolini. Before he resigns from the Vatican, John finds out from Appolini that Varese is in New York, and he promises John not to kill him. John finds Varese and tells him to go to a monastery and seek sanctuary so he cannot be prosecuted, but he is killed by Appolini before he can get there. Several months later, John's friend Santoni, who is the new Pope, reinstates him to the papal committee and offers him a position at the Vatican, which he accepts.
In 1943, John Flaherty (Christopher Reeve) is ordained as a priest before being sent to Europe as an Army Chaplain during World War II. Before he leaves, he officiates the marriage of his childhood friend Lodo Varese (Joe Cortese). Now in Europe, John is blessing the soul of a dying soldier when they are approached by German soldiers. John then picks up a machine gun and fends off the attack. A few months later, John is summoned to Vatican City, where he meets Bishop Walkman (Robert Prosky), the liaison between the Vatican and the US Army. Because he has a college degree in accounting, the Bishop hires John to be the Vatican's financial advisor. He then advises John to use his personality to his advantage but to also keep his head down and follow orders. Later, John meets Cardinal Secretary Santoni (Fernando Rey), a.k.a. the Pope's right-hand man, but doesn't kiss his ring. He feels he's unworthy of doing so because he committed murder on the battlefield. The Cardinal forgives him for those sins and then John kisses his ring.
With the war in Europe ending, Bishop Walkman tells John he should stay at the Vatican. Later, John sees that his friend Varese, who had enlisted, has come to Rome. Varese takes John to a warehouse, where he oversees army surplus. He has been selling the surplus to the Italian Mafia and pocketing the money. John then comes up with the idea to have the Vatican buy the surplus then sell it for a profit. This will help ease the debt the Vatican has, and it would keep the items out of the hands of criminals. Cardinal Santoni is leery of the arrangement, but eventually signs off on it, and puts John in complete control. He also promotes John to Monsignor. Varese puts John in touch with his Mafioso contact, Don Appolini (Jason Miller). John, wearing his army uniform instead of his clerical robes, meets Appolini at his home in Sicily and the Don agrees to buy the surplus of American cigarettes and split the profits. As part of the deal, Appolini pays John $50,000, which John later gives to Santoni. Later on, John and Appolini conduct other business arrangements, including using Appolini's personal Swiss bank accounts to support the Vatican's finances. John also instructs Varese and Appolini that when he is outside of the Vatican, he is to be called John Finnigan, and no one must know he is a priest.
On the way back to Rome after meeting with Appolini, John and Varese pick up a nun and her students, which includes a postulate named Clara (Genevieve Bujold). Still going by the name Finnigan, they soon fall for each other, culminating in them making love in the bedroom at Varese's warehouse. At that time, Clara admits she has been a postulate for over two years because the sisters doubt her faith. John and Clara later confess their love for each other, but Clara, who already knows about John's business dealings, is beginning to suspect that he isn't telling her the whole truth about himself. Her suspicions are proven true during a Papal blessing. Clara sees John at the ceremony, and she quickly realizes he is a priest. Afterwards, she tells him that she feels deceived by him and cannot ever forgive him. She then says that now that her native France has been liberated, she is returning there to officially become a nun and they will never see each other again. Varese tries to cheer up his heartbroken friend by getting him drunk and cavorting with prostitutes. The party is broken up by an angry Appolini, who tells John to clean up his act or their business dealings will be over. Feeling like he's lost his way in the faith, John approaches Cardinal Santoni and offers to resign from the priesthood. Santoni refuses the resignation, telling him that God will never lose faith in him.
Several years later, John is now Cardinal Flaherty inside the Vatican, but still John Finnigan outside of it. He continues to make business deals that have drawn the attention of the other Cardinals, while Varese is now doing business deals that have caused him to be placed under investigation from several international governments. At a secret meeting with the Pope, the Cardinals inform him that they have learned that Varese has stolen $40 million dollars and lost another $600 million of the Vatican's money, all due to Flaherty and Varese's business dealings. They know this because they have been secretly monitoring Flaherty's dealings, but never told him about the losses because they didn't trust him. As a result, the Pope removes John from the Papal Committee, meaning he has no chance of ever becoming the Pope. John has a meeting with the Pope, and he agrees to let John come up with a plan to recoup the money and save the Vatican's reputation before he resigns from the Vatican. John meets with an ailing Appolini, who tells John that he will cover the Vatican's debt, but Varese has fled the country and has returned to their hometown of New York. Before leaving, Appolini swears to John he won't have Varese killed.
John goes to New York, and he finds Varese. He tells John that he was tired to helping Appolini and the Vatican get rich and not get anything for his troubles. John then tells him to go to the local monastery and claim sanctuary because this would prevent him from being arrested by the government and causing further embarrassment to the Vatican. He agrees, and John leaves. But as Varese leaves, Appolini and several henchmen arrive and kill him. Several months later, John has been working at a quiet monastery when he is summoned to the Vatican. He arrives and is greeted by Santoni, who is now the Pope. The movie ends with him reinstating John to the Papal Committee and offering him a position at the Vatican, which he accepts.