Lonny Barnett, who serves as the show's narrator, sets up the story: In 1987, an aspiring rocker named Drew Boley works as a busboy in the Hollywood bar/club called The Bourbon Room, owned by Dennis Dupree ("Just Like Paradise/Nothing But A Good Time"). He falls instantly for a girl, Sherrie Christian, who just arrived from Kansas hoping to make it big in acting ("Sister Christian"). Drew convinces Dennis to hire Sherrie as a waitress.
German developers, Hertz and his son Franz, convince the city's Mayor to abandon the "sex, drugs and rock-n-roll" lifestyle of the Sunset Strip and introduce "clean living" into the area, much to the anger of the City Planner, Regina ("We Built This City"). When Dennis learns that part of the plan involves demolishing The Bourbon Room, he believes the club can generate more money by having rock star Stacee Jaxx and his band Arsenal, who recently announced their break-up, perform their last show at The Bourbon ("Too Much Time on My Hands"). He calls Stacee and convinces him to play the band's last show in the club where he began. As Drew struggles to write new lyrics, Sherrie urges him to go after his dreams ("I Wanna Rock"). Regina begins protesting Hertz and Franz's redevelopment plans ("We're Not Gonna Take It").
Later, after arguing with her parents during a phone call, Sherrie begins to discover feelings for Drew, who supports her dream. Also, Drew, auditioning to open for Arsenal, finds the lyrics he's been searching for and realizes that they have come from his feelings for Sherrie ("More Than Words/Heaven/To Be With You"). After obtaining the opening slot for Arsenal, Drew invites Sherrie to have a picnic in the hills overlooking Los Angeles ("Waiting For a Girl Like You"). There, he mistakenly suggests that the two are just friends to calm their nerves, disappointing both of them and ruining the date.
Stacee Jaxx arrives at The Bourbon and gives an interview about his life ("Wanted Dead or Alive"). Sherrie is immediately smitten with him, and believing she means nothing to Drew, has sex with Stacee in the men's room ("I Want To Know What Love Is"). While Stacee and Sherrie are copulating, Drew opens for Stacee and Arsenal, not knowing a record producer is in the audience. After their tryst, Stacee tells Dennis to fire Sherrie before the concert begins. His guitarist realizes what Stacee did and knocks him out. The record producer in the club was impressed with Drew's performance and suggests he take over for Stacee. He then offers Drew a contract, which he accepts. Sherrie seeks comfort from Drew after she is fired, but having seen her go into the men's room with Stacee, he dismisses her ("Come on Feel the Noize"). In the midst of these events, Regina continues her protest ("We're Not Gonna Take It [Reprise]").
An upset and unemployed Sherrie meets Justice Charlier, the owner of the nearby Venus Club which Justice prefers to call a gentleman's club. She relates to Sherrie's story, saying that many of the small-town girls hoping to hit it big in LA end up making a living as strippers. Grudgingly, Sherrie accepts Justice's offer to work in her club ("Harden My Heart/Shadows of the Night"). As the act closes, everyone is alone – Drew, as a new record company star; Sherrie, fending for herself as an exotic dancer; Regina protesting the redevelopment and Dennis, trying to save his club ("Here I Go Again").
Hertz and Franz begin demolition on the Sunset Strip, alienating them from each other as Franz falls for Regina and sees "the error of their ways". Dennis and Lonny join the fight with little success ("The Final Countdown"). Drew's rocker image is upsetting the record producer, and Sherrie is learning how things work at the Venus Club ("Any Way You Want It/I Wanna Rock [Reprise]"). When they meet on the street, Sherrie is embarrassed about her job and Drew is upset that his record company is attempting to reshape him into part of a boy band. They argue and Sherrie admits that she was crazy about Drew, but didn't make a move because he said they were friends. They part ways more troubled by these new revelations ("High Enough").
A drunken Stacee arrives at the Venus Club and is pleased to see Sherrie. After being forced to give him a lapdance, she beats him up while dancing ("I Hate Myself For Loving You/Heat Of The Moment"). Drew arrives to admit his feelings to her, but becomes angry when he sees the two in a suggestive position and storms off. Justice later tells Drew that as soon as he left, Sherrie punched Stacee in the jaw.
Regina continues her protest against the destruction of the Strip, but yields no success. She convinces Franz to stand up to his father if he does not believe in his father's vision. Franz admits he has his own dream, namely to open a confectioner's store in Germany. He rebels against his father and admits his love for Regina ("Hit Me With Your Best Shot"). Meanwhile, Dennis and Lonny, upset at the loss of The Bourbon Room, hilariously suggest they had feelings for each other ("Can't Fight This Feeling").
Sherrie decides to leave the Venus Club after the scene with Drew, and Justice tells her that she had a similar experience with her first love. Everyone is in turmoil as they attempt to move on with their lives ("Every Rose Has Its Thorn"). Franz leaves for Germany and Hertz stands on the balcony of his hotel regretting the hurtful way he treated his son ("Keep on Lovin' You"). Regina arrives and explains to Hertz that Franz doesn't hate him, he just wants his father to support his dream. Hertz later returns the deed to the Bourbon Room to Dennis and invests in Franz's confectionery store.
Drew, now a pizza delivery boy, realizes none of his dreams have come true- he still isn't a rock star, and Sherrie is leaving on a midnight train. Lonny arrives and explains to Drew that his life is so miserable because they are all characters in a musical and that it was their book writer who made it so. He then tells Drew that if he wants a happy ending it's up to him to get the girl. Through this revelation Drew realizes that he doesn't need fame to make him happy, only Sherrie ("Oh Sherrie"). He reaches her at the train station in time and they realize their love has survived all their trials and reconcile ("The Search Is Over").
In the epilogue, The Bourbon Room is spared demolition and washed-up Stacee Jaxx, who has been charged with statutory rape, flees to Uruguay ("Renegade"). Franz opens his confectionery store in Germany and has a long distance relationship with Regina, who becomes the new mayor of West Hollywood. Dennis passes away, and Sherrie and Drew move to Glendale and start a family. Lonny notes that on The Strip, sometimes the dreams you come in with aren't always the dreams you leave with, but they still rock ("Don't Stop Believin'").