Mr. Kite (George Burns), elderly mayor of the small, wholesome town of Heartland, recounts the history of Heartland's celebrated marching band. Sgt. Pepper and his Lonely Hearts Club Band brought happiness through its music, even causing troops in World Wars I and II to stop fighting. In August 1958, Sgt. Pepper died of a heart attack in the middle of a performance, at the unveiling of a new weather vane in his likeness. Sgt. Pepper left the band's magical musical instruments to the town; so long as they remain in Heartland, its people will live happily ever after. Heartland City Hall, which doubles as a Sgt. Pepper museum, contains the instruments. Sgt. Pepper left his musical legacy to his handsome and good-hearted grandson, Billy Shears (Peter Frampton). Billy forms a new Lonely Hearts Club Band with his three best friends: brothers Mark, Dave, and Bob Henderson (the Bee Gees). Billy's charming but avaricious half-brother, Dougie (Paul Nicholas), serves as the band's manager ("Sgt. Pepper's Lonely Hearts Club Band").

Heartland loves the new band ("With a Little Help from My Friends"), and soon Big Deal Records president B.D. Hoffler (Donald Pleasence) invites them to Hollywood with the promise of a record deal ("Fixing a Hole"), to which the band accepts ("Getting Better"). Billy bids farewell to his sweet hometown girlfriend, Strawberry Fields (Sandy Farina) ("Here Comes the Sun"). Once in Hollywood, B.D. introduces the band to their new labelmates, sexy singers Lucy (Dianne Steinberg) and the Diamonds (Stargard), and they negotiate the contract over a sex-and-drug-fueled dinner ("I Want You (She's So Heavy)"). Hitting it off with Lucy, Billy all but forgets about Strawberry. The band quickly succeeds ("Good Morning, Good Morning"), with hit records and sold-out concerts produced and performed as quickly as they succeeded ("Nowhere Man"/"Polythene Pam"/"She Came In Through the Bathroom Window"/"Sgt. Pepper's Lonely Hearts Club Band (Reprise)")........................