In the town of Tortilla Flat above beautiful Monterey lived a group of men called the paisanos. They were drunkards, thieves, ruffians, and vagabonds, but they were also surprisingly good at heart; requiring little more from life than friendship and a little wine. Among these paisanos were Danny, Pilon, Pablo, Jesus Maria, and Big Joe Portagee. When the First World War broke out, these paisanos decided to enlist in a fir of drunken patriotism. None of them actually made it anywhere near combat, and soon returned to Monterey to find it more or less as they had left it. One thing was different however, Danny's grandfather had died and left Danny two houses.

Pilon is the first to find Danny after the war, and Danny allows his friend to rent the other house from him. Gradually, the rest of the group turns up, and Pilon convinces them to rent rooms in the second house. One night, after a good amount of wine, the house burns down, and though Danny is angry at first, he allows the friends to move in with him. At Danny's house, they form a group, which Steinbeck often compares to the Knights of the Round Table. Indeed, they engage in many quests, some noble, and some downright sinful, enjoying companionship and the comfort of a roof to the fullest.

Most of the group's quests revolve around the acquisition of money, but in one case, they find a new friend instead. There was a paisano in town named the Pirate who was somewhat slow witted. He could be seen walking the streets and perusing the restaurants for scraps with his five dogs (his best friends and protectors). He chopped wood every day and sold it for a quarter in town. Pilon noticed that the Pirate never spent any money, and deduced that he must be hiding it somewhere. Pilon follows the bum all over trying to locate the stash, going so far as to invite him to stay in Danny's house so that they can keep a better watch over him. In living with the pirate, the friends grow compassionate for him, however, and one day the Pirate simply turns over the money to the friends so that it will be safe. The large bag of coins becomes the symbolic center of the friendship.

As the months pass, many more stories accumulate around the group. On St. Andrew's Eve Pilon and Big Joe think they have found treasure but it turns out to be a signpost for a geological survey. There are affairs with women, but the companionship within the group is much stronger than the affections any of them have for women. In the end, the romantic paisano returns to the group having relearned this lesson. In many cases, the paisanos provide a service to a needy party. One time, they house and feed a distraught caporal from the Mexican Army with his baby when the two have nowhere else to go. Another time, they save the large family of Senora Teresina Cortez from starvation when the local bean crop fails.

Sometimes there is wine, and sometimes there is food, but there is always the pleasure that each of them receives from the company of the others. Eventually the Pirate reaches his goal of one thousand quarters and buys a golden candlestick for Saint Francisco. The friends have a small party for this occasion with hamburger meat and wine bought from the plunder of a downed coast guard ship. When there is nothing going on, they rather spend their days in philosophical discussion of town gossip, enjoying the sun on their front porch. Often the stories are scandalous, but there is always a lesson to be learned from them.

The monotony of the paisano way of life and the weight of property ownership begins to wear on Danny, however. For a month, he sits on the porch with his friends brooding over memories of nights sleeping in the forest and the infinitely better taste of stolen food. In the end, the weight is too much and Danny gives into to his desires to reexperience his youth. He disappears into the woods and goes on a month long crime spree. He steals from everyone, including the members of his own household. Husbands all over town call for vengeance for what he has done to their wives, and the police swear that he will be arrested on sight for his vandalism and fighting. Mr. Torrelli, the wine merchant, even produces a note that Danny has signed authorizing the sale of the house for $25 dollars. Luckily, the merchant did not think to make a backup copy and the paisanos quickly dispose of the original. When Danny finally returns, he is tired and pleased with the fun he has had, but the growing sense of age is still with him.

Seeing their friend and their host in such a state, the friends of the house decide to cure him with a party. For the first time in their lives, the five, along with Tito Ralph, the jailer, and Johnny Pom-Pom go to work in the squid yards. Word of this earth-shattering event quickly spreads through Tortilla Flat and soon it is leaked that they are trying to make money to have a party. The whole town gets behind their effort, preparing food, digging up long saved booze, and buying wine and decorations. At four-thirty, Danny gets up and goes for a walk in the direction of Monterey and while he is gone, neighbors swarm on the house, decorating it. At five-thirty, the seven friends walk home with fourteen gallons of wine bought with their day's wages. They set out to find Danny and get the party started. Pilon and Pablo find him gloomily standing on a dark pier in Monterey. Pablo later swears that he saw an unearthly black bird hanging over Danny's head. When they give Danny word of the party, he is invigorated and the three race back up the hill to get things started.

It is said that Danny drank three gallons of wine by himself that night, and no woman in town would admit that he passed her up in his marathon of affairs. The party became legendary for its greatness. Everyone in the whole town was there and they danced so hard that the floor of the house caved in at points. More than thirty gallons of wine and a keg of potato whiskey were consumed. Unfortunately, the night ended in tragedy. After the good-natured fights that ritually accompanied a night of drinking, Danny was not finished. He picked up a table leg and challenged the entire world to a fight. When no one took the challenge, he charged outside, screaming that if no one would fight him then he would pit himself against an enemy worthy of his efforts. Danny plummeted to fatal wounds in the forty-foot drop to the bottom of the gulch behind his house. No one was sure what really happened, but everyone was sure that they had heard Danny fighting with some supernatural enemy before he let out his last scream of defiance.

Danny's funeral is a public debacle of fine clothes, stolen flowers, and military splendor. The paisanos cannot attend, however, for if they enter the proceedings in their poor clothes it would be a disgrace to Danny's memory. Instead, they watch from afar until they cannot stand the sorrow any longer and burst into tears. That night, they drink more wine and talk fondly of Danny's memory. They sing songs that he liked and smoke cigars provided by Tito Ralph. As Pilon attempts to relight one of the cigars, the match flutters out of his hand and ignites a newspaper in the corner. At first, they all get up to stamp the fire out, but they change their minds. The house dies, as Danny did, in one last blaze of glory. When there is nothing but ashes left, the friends depart, each going his separate way.