Wealthy Sara Crewe is a very bright student and the darling of strict Miss Minchin's London boarding school. When word comes that Sara's father has died in the war after losing his fortune, Sara is demoted to harshly treated scullery maid, relieved of her possessions and made to sleep in the cold bare attic. She uses her vivid imagination to comfort herself and the other orphan maid Becky.
An elderly next-door neighbor to the school, having lost his own son to the war, is caring for a battle-fatigued amnesia victim. His manservant sees Sara and Becky's poverty, and sneaks over one night to fill their attic with lush linens and a huge spread of food. The girls are overjoyed at the mysterious beneficence and share with some of the students.
Miss Minchin discovers the impromptu party and calls the authorities to have Sara and Becky taken away.
The amnesia victim next door turns out to be Sara's father, who comes to himself when Sara calls out to him as she is being taken away. The are joyfully reunited; his fortune wasn't really lost after all, so they buy the school, and Miss Minchin is reduced to being a chimney sweep.