Act I
In the Land of Oz, the Ozians are rejoicing over the demise of Elphaba, the Wicked Witch of the West. Glinda the Good Witch floats in and discusses Elphaba's past, wherein Elphaba's mother had an affair with a travelling salesman, after Elphaba's father, who just happened to be the governor of Munchkinland, went out of town. She becomes pregnant and gives birth to a baby girl with green skin ("No One Mourns the Wicked"). One of the Ozians asks Glinda if she and Elphaba were friends. She admits that they were, leading Glinda to tell them about how they became best friends. A flashback starts with a scene at Shiz University, where Elphaba arrives with her father and her younger sister, Nessarose ("Dear Old Shiz").

Due to her green skin, Elphaba's father resents her and showers his affection on Nessa, who is physically disabled and uses a wheelchair, due to a birth defect that contributed to their mother's death. As their father says goodbye, he gives Nessa a pair of jeweled shoes. The headmistress of Shiz, Madame Morrible, decides to take Nessa under her protection, leaving Elphaba and the popular Galinda, another Shiz University student, as roommates, much to their chagrin. Elphaba attempts to take back her sister, and her anger makes Nessa come back into her hands. Madame Morrible realizes that Elphaba has special powers, and decides to teach her sorcery. She tells Elphaba her powers might allow her to one day work with the Wonderful Wizard of Oz, something Elphaba has dreamed of her whole entire life ("The Wizard and I").

Both Galinda and Elphaba express their loathing ("What Is This Feeling?"). They also fight constantly, even in their classes, such as their history class with Doctor Dillamond, a Goat, who, as the only Animal professor at Shiz, is beginning to suffer from discrimination. He tells Elphaba that a conspiracy is afoot to stop animals from speaking, and she wants to let the Wizard know, for he would surely stop it ("Something Bad").

Later, the Winkie Prince Fiyero Tiggular arrives at Shiz and introduces the other students to his philosophy of simply "Dancing through life". Fiyero decides to have an orientation party at the Ozdust Ballroom, that evening, and everyone agrees to go. Boq, a Munchkin who has developed a crush on Galinda, tries to ask her to dance with him at the party, but she convinces him to ask Nessa out, instead, in order to shoo him away, leaving Galinda free to go with Fiyero. Nessa, who has a crush on Boq, is delighted and tells her sister how Galinda made it happen and how happy it has made her. Galinda decides to give Elphaba a black witch's hat to wear at the party, as a practical joke. At the party that evening, Boq tries to tell Nessa the real reason he invited her but is too nice to hurt her feelings ("Dancing Through Life"). She continues to fall for him. Madame Morrible arrives to tell Galinda she can join her sorcery class, at Elphaba's obliging request, and gives her a wand. Elphaba arrives wearing the witch's hat, only to find the other students laughing and staring while she awkwardly dances alone. Galinda feels regret and starts dancing with her. Soon, everyone joins them, and the two girls see each other in a new light.

Back in their room, they continue to bond by sharing secrets with each other. Galinda then decides to give her new friend a personality makeover ("Popular"). When Elphaba arrives at class the next day, Fiyero sees Galinda's influence and tells her that she doesn't need to change. Dr. Dillamond enters to tell the class that he has been excommunicated. Elphaba wants to help, but no one will stand up with her. Afterward, the students are introduced to the cage, which will keep Animals controlled. Elphaba's fury cannot be contained, and in the ensuing chaos, she and Fiyero steal the Lion cub and escape. They share a private moment with each other before he leaves to free the lion cub, leaving Elphaba alone to lament ("I'm Not That Girl"). Madame Morrible tells her that the Wizard has decided to meet her. Nessarose, Fiyero, and Galinda come to see her off at the train station. Galinda tries to win his respect by changing her name to simply "Glinda", in honor of Dr. Dillamond, who always mispronounced her name, but Fiyero isn't impressed. Elphaba invites Glinda for a day of sightseeing in the Emerald City ("One Short Day").

Elphaba and Glinda meet the Wizard of Oz, who turns out to be not quite as wonderful as they thought ("A Sentimental Man"). He promises Elphaba that he will grant her request if she proves herself. Madame Morrible appears; she is revealed to be the Wizard's new "press secretary". She gives Elphaba a book of spells, called the Grimmerie, which only the magically gifted can read. Elphaba is asked to try a levitation spell on the Wizard's monkey servant, Chistery. However, the spell does not go the way Elphaba plans. Chistery sprouts wings, and she realizes that the Wizard is the one behind the suppression of the animals. Elphaba realizes that the Wizard of Oz has no powers and he is merely a fraud. She runs away from the Wizard's chamber, and to prevent the truth from getting out, Madame Morrible warns all of Oz that Elphaba is a "wicked witch!" Elphaba then swears revenge on the Wizard for removing speech from the animals. She performs a spell on a broom and flies away from the Emerald City ("Defying Gravity").

Act II
Sometime later, Elphaba's opposition to the Wizard's regime has earned her the infamous title of "The Wicked Witch of the West." Glinda has become the positive public front, given the title ‘Glinda the Good’ and positioned by The Wizard as the nation's defender against Elphaba. A press conference to celebrate Fiyero's appointment as captain of the guard (a position he accepted to find Elphaba) is hijacked by the crowd's panicked rumors about Elphaba, including one saying that "pure water can melt her!" Fiyero is incredulous and not convinced by Glinda's insistence that Elphaba does not want to be found. He is further angered when Madame Morrible announces his engagement to Glinda and storms off. Glinda attempts to keep a cheerful front for the press, but clearly regrets her decision ("Thank Goodness").

Meanwhile, Elphaba pays a visit to Nessarose, who is now the governor of Munchkinland, following the death of their father. Nessa has taken away the Munchkin's rights so that Boq can't leave her. Elphaba tries to convince her sister to side with her against the Wizard, but Nessa is more concerned with her own problems. Elphaba tries to help by giving Nessa the power to walk, by turning Nessa's jeweled shoes into ruby slippers. Nessa calls for Boq, convinced he would love her now, but he only sees this as proof that she does not need him anymore, and the opportunity to take his last chance to tell Glinda that he loves her. Nessa takes the Grimmerie and tries to cast a spell to make Boq fall in love with her. However, she pronounces the words all wrong, and accidentally shrinks Boq's heart ("The Wicked Witch of the East"). Elphaba works another spell to save his life, if in a different physical form. When Boq awakens, Elphaba is gone and he finds himself in the state as the Tin Woodman. Horrified, Nessa lays the blame on Elphaba.

Elphaba returns to the Wizard's palace to free the monkey servants and encounters the Wizard. He tries once again to convince her to work with him, telling her that he is not evil, but just an average man who came into his position by chance, and he offers to redeem Elphaba's reputation ("Wonderful"). She is almost won over, until she sees Dr. Dillamond who has lost the power of speech. Angered by this, Elphaba accuses the Wizard, but he calls the guards to arrest Elphaba. In response, Fiyero and the guards enter, followed by Glinda. However, Fiyero helps Elphaba escape and leaves with her. Heartbroken at Fiyero switching sides with Elphaba ("I'm Not That Girl (reprise)"), Glinda suggests to the Wizard and Madame Morrible to use Nessarose as bait, by spreading a rumor that she's in danger, allowing the officials to capture Elphaba once and for all. Morrible agrees, and conjures up "a change in the weather".

In the middle of the woods, Elphaba and Fiyero acknowledge their feelings for the other ("As Long As You're Mine") before Elphaba has a vision of Nessa in danger. Before Elphaba leaves, Fiyero says she could stay at Kiamo Ko, a castle his family owns. Elphaba arrives in Munchkinland to find Nessa crushed by a house with a girl named Dorothy Gale and her dog Toto inside, who have been sent by Glinda on the yellow brick road with Nessa's ruby slippers. The two have a heated argument and fight. The Wizard's guards arrive to arrest Elphaba. Fiyero holds Glinda hostage until Elphaba flees. Glinda pleads for the guards not to harm him, but they do not listen and escort Fiyero into a nearby cornfield. Meanwhile, at Kiamo Ko, Elphaba tries to cast a spell to save Fiyero, but is crestfallen by the limitations of her power. She decides to accept her reputation as a "Wicked Witch" ("No Good Deed").

Later, at the capital of Oz, all of its citizens unite, declaring war on Elphaba, due to the now full-grown lion, and Boq's testimony against her. Meanwhile, Glinda has realized that Madame Morrible, whose specialty is weather, is responsible for Nessa's death. Glinda flees in horror to warn Elphaba, as the angry mob sets out to take Kiamo Ko ("March of the Witch Hunters").

Back at the castle, Elphaba has captured Dorothy and Toto, refusing to release them until Dorothy gives her Nessa's ruby slippers. Glinda arrives to warn her of the danger and persuade her to let Dorothy and Toto go. Elphaba refuses until she receives a letter saying that Fiyero has died. The two women forgive each other, acknowledging they have both made mistakes. To help her in her future, Elphaba gives the Grimmerie to Glinda. The two friends embrace for the last time, before saying goodbye ("For Good"). As the mob arrives, Elphaba tells Glinda to hide, and she watches from the shadows as Dorothy throws a bucket of water on Elphaba, 'melting' her. After this happens, Glinda sees that the only remains of her friend are her pointy hat and the Green Elixir that her mother drank.

In the Emerald City, Glinda confronts the Wizard with Elphaba's bottle, which he recognizes as identical to his own. It is revealed that he was Elphaba's biological father, her mother's lover, and the cause of her green skin. He breaks down in sorrow, and Madame Morrible surmises that Elphaba's powers were so strong because she was a child of two worlds. Glinda banishes the Wizard from Oz and sends Madame Morrible to prison. Meanwhile, Fiyero (now a scarecrow) comes to the spot where Elphaba melted. Making sure no one is watching, he knocks on the floor and out from a trap door steps Elphaba, very much alive; she had pretended to melt to convince her enemies of her death and to be with Fiyero, who was transformed into a scarecrow by her spell. Before leaving, Elphaba regrets that she will never see Glinda again and tell her that they are alive. Simultaneously, the musical returns to its starting point. Glinda finishes the story and promises the people of Oz that she will properly earn her title as Glinda the Good. As the people celebrate and Glinda quietly mourns, Elphaba and Fiyero leave Oz ("Finale").