Elwood P. Dowd is an endlessly pleasant and delightfully eccentric bachelor living in a small town that isn't quite aware that its newest citizen is a invisible, 6'3" white rabbit named "Harvey," that only certain people can see. After supposedly meeting this rabbit - its origins attributed to the Celtic legend of the Pooka - Dowd's sanity is put into question by his equally eccentric sister, Veta Louise.Elwood casually drives his sister's guests from their house by introducing and carrying on one-sided conversations with his invisible and silent friend. His sister and niece, Myrtle Mae, resort to taking him to the local sanitarium to have him committed. However, owing to people not paying attention, interrupting, and cutting Elwood off as he is about to introduce his imaginary friend, it doesn't immediately appear that there is anything wrong with him, although the examining doctor is sure he is doing the right thing by admitting him.Elwood is carted upstairs by a rough-handed and simple-minded man in the white coat while the examining doctor ushers the sister into the head psychiatrist's --Dr. Chumley's-- office to give a description of the problem. As Elwood is "escorted" to hydrotherapy, he tells the man in the white coat his friend "Harvey" is a "Pooka" The Aide later looks up the definition in the dictionary: "Celtic mythology, a mischievous spirit that takes animal form and appears sometimes to some people for the purpose of doing this and that."As Veta, still highly upset over Elwood driving away her friends, bemoans Elwoods delusions to Dr. Chumley, her frazzled manner and insistence that Elwood actually does have a six foot 3 inch invisible rabbit for a friend convinces Chumley it is she, not Elwood, who is hallucinating.He quickly has Veta carted upstairs and, fearing a lawsuit for incarcerating and treating a sane man, brings Elwood down and makes every manner of friendly gesture, including firing the examining doctor, Dr. Sanderson . His nurse, Miss Kelly, who is actually quite fond of Dr. Sanderson, is crestfallen, but, upset at being fired, the good doctor is unaware of her feelings for him, and this angers her.Elwood in his normal good natured way takes no exception to any of the events and once again, as he is about to introduce "Harvey," gets cut off, interrupted and ignored while Dr. Chumley pursues his patronizing commentary. Never one to interrupt, the pinnacle of politeness, Elwood lets him say whatever he is going to say and is finally given a pass to leave. Soon Veta's friends, including Judge Gaffney, and Myrtle Mae arrive. The mistake is uncovered, and the entire group goes into a panic trying to find Elwood. Veta and the Judge Gaffney promise to sue the sanitarium for wrongful incarceration and rough treatment.Distraught, Elwood drinks heavily and retires to his favorite watering hole, Charlie's. Dr. Chumley, himself, tracks Elwood down, but while he is doing this, everyone else is looking in other places. When it finally becomes apparent to everyone that the Doctor has been gone for over four hours and that Elwood is not back in custody, another major panic ensues and the group descends on Charlie's to see what has happened to Dr. Chumley.Elwood, of course, is sitting alone, drinking, and maintains that the doctor left the bar with Harvey. They are convinced he is a madman and has done away with the doctor. However, in his easygoing and pleasant manner, Elwood sidetracks everyone with drinks and conversation and disarms them. Eventually the subject does turn back to the missing doctor, and the panic ensues again.The police are summoned, the heavy handed man in the white coat muscles Elwood back to the sanitarium, but not before becoming infatuated with Myrtle Mae and making advances toward her. Although he is a big galoot, she's attracted to him. The entire entourage, of Veta, Myrtle Mae, Dr. Sanderson, Miss Kelly, Judge Gaffney, the guard and the police, arrive at the sanitarium in a police car and a taxi to discover the doctor is there.However, Dr. Chumley arrives back at the hospital with a look of admiration and fear. Dr. Chumley indeed did leave with Harvey, the Pooka, but he wisely does not say anything about it to anyone, dismisses them all and tells everyone that everything is under control. He tells Dr. Sanderson that he is a fine doctor and can have his job back, then disappears into his office. Sanderson then decides to administer a very powerful injection, called Formula 977, into Elwood that will make him cease with his delusions about the rabbit for once and for all.Meanwhile the cab driver wants his money for the fare. No one seems to have any money so Veta says she'll pay. Digging everything out of her handbag, she discovers her money is gone. She assures the driver that if he waits until Elwood has his injection, she'll pay him handsomely when they are driven back home. The Cab driver however has dour insights into the effects of the injection about to be administered to Elwood. He says he's given many people a ride to the sanitarium for that injection and it changes them into crabby mean people; normal but irritable and unpleasant. Elwood, the most disarming and engaging and mild mannered man in the universe, is on the verge of being turned permanently into a real nuisance, so Veta abruptly changes her mind and rushes in and prevents the injection.Dr. Chumley asks to see Elwood privately in his office where Elwood tells him tells the incredible story of how he came to meet Harvey, and explains the way in which people react when they meet them. Elwood also explains that Harvey has the power to stop time by saying:"Did I tell you he could stop clocks? Well, you've heard the expression 'His face would stop a clock'? Well, Harvey can look at your clock and stop it. And you can go anywhere you like, with anyone you like, and stay as long as you like. And when you get back, not one minute will have ticked by. You see, science has overcome time and space. Well, Harvey has overcome not only time and space, but any objections."By this point, Dr. Chumley is not only convinced of Harvey's existence, but has begun spending time with him on his own, and requests that Elwood allow Harvey to stay with him for a while and help him out by making his long-needed sabbatical a reality. Apparently this is one of the things Harvey can do if he is so inclined. Elwood asks Harvey if he will work with Chumley and tells Chumley that Harvey agrees.Dr. Sanderson pays for the cab and warms up to the nurse who has a crush on him. The entourage leaves, with the heavy-handed guard and Myrtle Mae making a date to see each other. As the sister digs in her pocketbook she discovers her money purse. She looks over her shoulder and says knowingly, "Harvey," and shakes her head. She knew Harvey existed, and was mischievous, and her only reason for wanting to have Elwood committed was that Elwood's insistence on introducing him to her guests was driving everyone away.As Elwood is leaving, Dr. Chumley asks Elwood for Harvey's help, and Elwood, being the obliging fellow he is, makes no objection. Dr. Chumley, arm in arm with an invisible companion, asks "Have you ever been to Akron?"In the final shot, after the gates to Chumley's Residence are closed, and Elwood is leaving, he stops, turns around and has a conversation with an invisible Harvey, who is already back from his trip to Akron (only a few minutes have gone by, but it was weeks due to Harvey the Pooka stopping time) and reaffirms their friendship. Harvey opens the security gate (showing only the control handles moving by themselves; Harvey is never seen on camera), and Elwood and his invisible companion saunter off towards the bus stop, following Veta and Myrtle Mae, towards the planned last stop of Charlie's Bar and another drink.