Antonio enters and greets the audience, welcoming them to the story of Pinocchio, a story that takes place in Italy ("Buon Giorno"). Antonio is a carpenter who lives in a very tiny Italian village that is too small even to find on a map; however, we all may know it from what happened to the puppet there who became a real boy.

It all begins one day when the bells are ringing and life is going about as normal. In this town, there is a balloon seller, organ grinder, pizza maker, street urchins, etc. – regular Italians leading regular Italian lives. Antonio greets Angelina, who is housekeeper to the puppet maker, Maestro Geppetto. She is on her way to the market to get fish for lunch. When asked how Geppetto is doing, she only can say that he stays at home, spending much of his time talking with his puppets as if they were real people. In fact, the puppets are so magnificent that they could be real people. Right now, he is making one that is life size, calling it Pinocchio. A bit of commotion happens when the Balloon Seller realizes that a young street urchin, Candlewick, is trying to steal his wallet. It is apparent that these street urchins get themselves into trouble all of the time.

Angelina continues on her way, and Geppetto appears, saying "hello" to everyone. When he and Antonio talk, Geppetto reveals that he has finished his greatest creation: a life-size puppet, Pinocchio. When Angelina brings Pinocchio out for Antonio to see, he is quite impressed with the wonderful craftsmanship. Geppetto demonstrates how the puppet works, and it is quite wonderful ("Give A Little Tap").

Even though the puppet is great, Geppetto would like it much better if his prayer could be answered: if only he could have a real son ("A Real Little Boy"). Angelina goes in to prepare lunch, and Antonio returns to work. As Geppetto sits with his puppet on a bench outside of his shop, an old woman in a hooded cloak enters and asks Geppetto if he is the man who has always given to the poor. She is a woman who needs food to feed a hungry child. Without hesitation, Geppetto produces some coins from his pockets and gives them to the old woman. He then goes inside to eat.

After he is gone, the Old Woman removes the hood of her cape, revealing herself as the Blue Fairy. She says that Geppetto is the kind of man who deserves to have his dreams come true. With that, she waves her arms over Pinocchio, and the puppet comes to life. She removes the strings from the excited puppet as he jumps around, realizing all of the wonderful things he can do. He is almost real – the only difference is that he is still made of wood ("You Can Talk, You Can Walk").

The Fairy readies to leave but before she does, she tells Pinocchio that if he wants to be a real boy, he must always be good and obey his father. He promises to do that without hesitation. No sooner is she gone than Pinocchio calls to his father, Geppetto, who comes out to find his puppet come to life. The old man can't believe his eyes but when he finally does, he is excited beyond belief. When Angelina sees what has happened, she screams that it is the work of the devil and runs into the shop. Suddenly, Geppetto gets an idea: There never has been a talking puppet before, and he is going to make Pinocchio a star by putting him into a show. When Pinocchio asks Geppetto what a "show" is, the old man describes it in full detail ("That's a Show").

Geppetto introduces Pinocchio to the public in his own show ("Pinocchio"). At first, the people can't believe that he is real, but when he dances about and sings them a song ("Santa Lucia"), the crowd goes wild. He is a huge success!

The next morning, however, the troubles begin. When Geppetto tries to get Pinocchio to go to school, his son tells him that he doesn't want to go. After Geppetto finally insists, Pinocchio goes but on his way, he meets Candlewick and his friend, Gino, who tell him to not listen to his father but to play hooky with them, instead. They hate going to school so they never do ("I Don't Wanna Go to School"). Fortunately, Pinocchio doesn't listen to the two ruffians and he goes to school. He has a bad time there when all of the kids laugh at him because he is a puppet. The teacher tries to discipline him by spanking him with a wooden paddle but only succeeds in breaking it over Pinocchio's wooden head. Pinocchio runs away in tears.

Before he arrives at home, he meets Candlewick and Gino once again. They entice the distraught Pinocchio to go with them to the Land of the Toys, where there are no schools and they can play all day. The Blue Fairy appears to Pinocchio and tries to warn him about going with the boys, and Pinocchio questions her. She reminds him that she can only warn him once and help him twice; after that, he must pay the price. With that, she leaves him.

Pinocchio tells the boys that he better go home to Geppetto but suddenly sees a coach heading their way ("The Coach Is Comin'"). The Coach arrives, and the coachman further entices Pinocchio to go with him, Candlewick and Gino ("The Land of the Toys").

Pinocchio leaves on the coach. Poor Geppetto is broken-hearted when his little puppet doesn't return that evening ("Geppetto's Lament"). He tells Angelina to wait for Pinocchio, in case he comes home, and he goes out to search.

Pinocchio and the boys arrive at the Land of the Toys ("Reprise"), and appears to be perfect at first. Gino and Candlewick talk about the wonderful time that they all are having. The only strange thing is that there seem to be so many donkeys all over the place. When Pinocchio starts turning into a donkey, they realize that they have been duped. They try to escape but begin braying. The evil Coachman stops them, and the boys all completely turn into donkeys – that's what happens to little boys who run from their homes and choose not to study. The new donkeys, Candlewick and Gino, are sold to work in the mines while Pinocchio is sold to a traveling opera company, where he pulls a cart full of scenery from town to town.

Many months pass and Geppetto still continues his search ("Geppetto's Search"). While out, he finds a donkey (Pinocchio) shivering in the cold. Geppetto covers him with his cloak and continues on his way. Pinocchio is too ashamed to follow his father. Later that night, the Blue Fairy appears to Pinocchio, takes pity on him and changes him back into a puppet. When she asks him why he did what he did, Pinocchio blames it on Candlewick and Gino. With that, his nose begins to grow. Only when he tells the truth and admits that everything was his own fault, does his nose return to normal? The Blue Fairy tells Pinocchio to return home and that if he is good from now on, he will become a real boy. He promises to be good, grabs the cloak that his father used to cover him and returns on his way.

Five gold pieces fall out of the cloak, exciting a passing Fox and Cat, who take notice of the walking and talking puppet with the coins ("Growl! Meow!"). Pinocchio continues to search for his father but is stopped by the Fox, who tries to get the money from him, first, by offering singing lessons for money and then, by pretending to be an investment banker. The Cat then steps in and tells Pinocchio that what he really needs to do is go to the Field of Miracles, where, by planting his five gold pieces, they will multiply into several thousand gold pieces. Pinocchio agrees and plants the gold coins in the ground. The two animals then send him over to get some water and while Pinocchio is gone, they dig up the coins and go on their merry way. Pinocchio returns with the water and finds that he has been tricked ("Everything I Do Goes Wrong").

He wanders for days until he reaches the sea, flinging himself into the water to drown; however, a wooden puppet can only float. Suddenly, a huge whale swallows him up, and he finds that Geppetto, too, is inside of the whale, boat and all. He was swallowed up over a month ago while out searching for Pinocchio. They both try to think of a way out, and Pinocchio suggests that they get the whale to sneeze by starting a fire. Pinocchio even offers to burn himself so that his father can survive. Geppetto wouldn't even think of such nonsense. Instead, Geppetto finds a wooden crate, sets it on fire and the whale soon sneezes them both out.

They both make it home, and the Blue Fairy returns once again. She praises Pinocchio for saving his father's life and tells him that all is forgiven. With a wave of her hand, Pinocchio is not wood anymore. He's a real boy! Pinocchio runs to his father. Geppetto's prayers have been answered. At last, he has a real son of his own ("Real Boy – Reprise")!