Full Synopsis

The leader of the Muses, Clio, convinces her companions to inspire Sonny to create a great work of art. Since Muses are forbidden to declare their true nature to mortals, Clio decides that she will call herself "Kira," wear a costume, including roller skates and leg warmers, and speak with an Australian accent.

On the Santa Monica Pier, Sonny's artistic frustration has left him contemplating suicide. Kira arrives and convinces him that she believes in his talent ("Magic"). Instantly inspired, Sonny shares with Kira his dream of creating a roller disco.

When she returns to her sister Muses, Kira is accused by her elder sister, Melpomene, of falling in love with Sonny and of desiring to create her own works of art, both of which are forbidden. Kira reveals that Zeus has informed her that she is destined one day to receive the gift of Xanadu, "the gift so grand that none of us truly knows what it is."

Once Kira has departed, two of the Muses, Melpomene and Calliope, express their jealousy of Kira and decide to curse her into falling in love with Sonny, thereby violating one of Zeus' rules ("Evil Woman").

Sonny and Kira soon locate a dilapidated auditorium that will be the perfect location for his roller disco. A sign on the old marquee reads "Xanadu," and Kira takes this as a sign from Zeus that her destiny approaches. The mutual attraction between Sonny and Kira increases ("Suddenly"). Sonny arranges to meet with the auditorium's landlord, real estate mogul and former big band musician, Danny Maguire.

Danny is less than impressed by Sonny's request that he be given the old auditorium for free in order to open the roller disco. Danny reveals that, in fact, he built the theatre in the first place, but never opened it. Kira strongly reminds Danny of his old dance partner, Tangerine ("Whenever You're Away from Me."). A flashback sequence reveals Kira dancing with Danny's younger self. We learn that Danny built the Xanadu theatre for Tangerine. Danny's hesitation to open the theatre due to concerns about the financial risks involved led Tangerine to leave him. Kira convinces Danny to give Sonny a chance.

That night, Sonny breaks into the theatre so that he can see the place where his dream almost happened. Danny finds him there, and the two men compare their visions for what Xanadu could have been ("Dancin'"). Danny offers to give Sonny and Kira 25% of the profits from Xanadu if Sonny can fix up the theatre by the following sunset.

Sonny convinces Kira to help him draw up plans for the theatre. Kira makes a drawing, which is the first time that she has ever created anything. At that moment, Calliope and Melpomene curse Kira and Sonny to fall in love ("Strange Magic") before sneaking away.

Kira's non-villainous sisters arrive and, under Sonny's direction, they help to transform the theater ("All over the World").

Danny arrives as the theatre's transformation is complete. Danny and Sonny agree to become partners. Kira begins to realize that she has helped create something and has fallen in love with Sonny, thereby violating the two fundamental Muse rules. She also realizes with some apprehension that "Xanadu" might not turn out to be the positive destiny that she had expected, but might be some sort of impending punishment for her transgressions.

Hermes, a messenger from Zeus, arrives to remind Kira of the rules. Kira tells Sonny that she must leave him. Sonny pleads in vain with her not to go ("Don't Walk Away").

Melpomene, posing as a high-end real estate broker, offers to buy the theatre from Danny. After some hesitation about betraying his partner, he agrees.

Kira returns to the mural and confesses to Melpomene and Calliope that she has fallen in love with a mortal. Sonny arrives, and Kira tells him everything, including the facts that her name is really Clio and that she is a Muse. Sonny doesn't believe any of this and thinks that Kira is crazy. Melpomene and Calliope reveal that they have cursed Kira and that she is therefore not really in love with Sonny. Kira denies this, insisting that she really does love Sonny, but Sonny doesn't believe her. This causes Kira to become angry with Sonny ("Fool"). She goes on to confess to her sisters that she has broken all of Zeus' decrees and that she intends to return to Mount Olympus to receive her just punishment. Sonny bids her a sad farewell ("The Fall"). Danny arrives to tell Sonny of his betrayal but, by this point, Sonny doesn't even care.

Kira mounts the winged horse, Pegasus, and ascends to Mount Olympus ("Suspended in Time"). Seeing her, Danny and Sonny realize that Kira and Tangerine are indeed the same person and that Kira must have been telling the truth. Danny rushes off to save the theatre while Sonny resolves to follow Kira to Mount Olympus.

On Mount Olympus (portrayed as a complete homage to the 1980s movie, Clash of the Titans), Kira begs the gods for forgiveness. It is revealed that the curse that was placed on Kira by Melpomene and Calliope had no effect on her, and that she really does love Sonny. Zeus' wives sympathize with Kira and plead with Zeus on her behalf ("Have You Never Been Mellow").

Sonny arrives at Olympus and vows to fight the Gods to prove his love for Kira. Zeus is impressed by his courage. Kira states that she is willing to give up her powers and immortality to be with Sonny. Zeus agrees to make it so. He reveals that Sonny and Kira will receive the greatest gift possible for mortals – to love someone else and to create art. "That," he explains, "is Xanadu." ("Xanadu").