Thirteen-year-old Tracy Freeland writes poetry and is an honor student at Portola Middle School in Los Angeles. Her divorced mother Melanie is a recovering alcoholic and high school dropout who struggles as a hairdresser to support her two children, Tracy and older brother Mason. At school Tracy is teased by some girls about her “cabbage patch” clothes. Tracy then endeavors to shed her “little girl” image and pleads with her mother to purchase a trendier style of clothing. Melanie buys Tracy new clothes from a discount vendor in a parked van.
Tracy is then invited by Evie Zamora, one of the most popular girls at school, to go shopping on Melrose Avenue in Hollywood. Although Evie gives her a disconnected telephone number as a mean joke, Tracy takes a city bus to Melrose Avenue anyway, where she finds Evie and a friend at an edgy thrift shop. At the store, Tracy sees Evie and her friend continuously shoplift. Tracy begins to feel uncomfortable, and walks by herself out of the store and sits on a bench outside. Once there, Tracy begins to truly feel the need to be popular. She then steals a distracted woman's pocketbook to be more like Evie. This impresses Evie and her friend and they all go on a shopping spree. After this incident, Tracy and Evie become best friends and Evie temporarily moves into the Freeland household.
Tracy, amongst other things, is angry about her parents' divorce and, unbeknownst to her mother, cuts herself as a way to cope with the stress. Tracy rapidly transforms into a new person as she neglects her old friends, becomes more impulsive, and cares less about her schoolwork. She taunts Melanie's boyfriend, Brady, who is also a recovering addict. Although Melanie is somewhat aware of what is happening with Tracy and Evie, she is unable to stop them.
Melanie is also reluctant to ask Evie to leave her household because of Evie's manipulative, yet likely truthful claims of an abusive childhood. As Tracy steadily shuts Melanie out of her life, Tracy and Evie become very close, even talking to each other in their own language. However, after the early thrills, Tracy's new-found popularity does not make her happy. Although Tracy endeavors to emulate Evie's seductive behavior, this does not bring her pleasure. Tracy gets caught up in the so-called "romance" with a teenage boy Javi, but then later doubts he feels the same.
When Evie and Tracy try to seduce Luke, an adult lifeguard in his early twenties who is a friend of Mason, Tracy does not feel comfortable. Drawn at first into their kisses and allowing them to partially strip him, Luke throws them out of his house and soon moves away from the neighborhood.
One night in Hollywood, Mason and a friend make comments about the thong on a cute girl and is then shocked when the girl turns around and he realizes that it is his sister, with a belly ring. Tracy and Evie were at the movies with Melanie and Brady, but bolted to do other things. Later on, the girls take turns inhaling from a can of gas duster for computers and become so intoxicated that they laughingly hit each other, drawing blood. Meanwhile Melanie is unaware of how deeply the girls have fallen into petty crime, drug abuse and oral sex with teenage boys. Seeing the harmful impact Evie is having on their lives, Melanie takes Evie back to live with her cousin Brooke. Tracy seems to agree with this, after which Evie becomes upset and suddenly betrays Tracy at school. Melanie also hopes that Tracy will go live with her father, Travis, but she is unhappy at this thought. But, much to Tracy's dismay, Travis decides he wants to take custody of Mason instead, to give him a more stable environment away from Tracy.
After being informed she may fail seventh grade, Tracy comes home after school to find Evie, Brooke, and Melanie waiting for her. When the women confront Tracy about the girls' drug use and stealing, Tracy angrily blames Evie after she sees how Evie tries to blame it on her. Brooke, convinced by Evie, says Tracy was the bad influence and owing to this, they are moving away to get away from her. Melanie stands up for her daughter, saying Tracy was "playing with Barbie’s" before she met Evie.
Brooke grabs Tracy and pulls her sleeve up to show Melanie the many cuts and long scars on her daughter's left arm caused by her self-mutilation. Horrified, Melanie tells Brooke and Evie to leave. Both mother and daughter weep on the kitchen floor as Melanie kisses her daughter's heavily cut arm. Although Tracy tearfully pleads with Melanie to let go of her, Melanie holds on tight, and the two eventually fall asleep holding each other. The next morning Tracy wakes up with a fresh start and a new life.
The film ends with Tracy spinning alone on a park merry-go-round and she screams.