When Elwood P. Dowd starts to introduce his imaginary friend Harvey, a six and a half foot rabbit, to guests at a dinner party, his sister, Veta, has seen as much of his eccentric behavior as she can tolerate. She decides to have him committed to a sanitarium to spare her daughter, Myrtle Mae, and their family, from future embarrassment. Problems arise, however, when Veta herself is mistakenly assumed to be on the fringe of lunacy when she explains to doctors that years of living with Elwood's hallucination have caused her to see Harvey also! The doctors commit Veta instead of Elwood, but when the truth comes out, the search is on for Elwood and his invisible companion. When he shows up at the sanitarium looking for his lost friend Harvey it seems that the mild-mannered Elwood's delusion has had a strange influence on more than one of the doctors. Only at the end does Veta realize that maybe Harvey isn't so bad after all.
