The film begins in Florence, Italy, where a group of cultured expatriate British women — called by the Italians the Scorpioni — meet for tea every afternoon. Young Luca (Charlie Lucas) is the illegitimate son of an Italian businessman. When Luca's mother dies, his father shows no interest in his son's upbringing and Mary Wallace (Joan Plowright) steps in as his guardian. Finding the task of bringing up a young boy alone daunting, she turns to the Scorpioni women for support. Together, they teach Luca many lessons about life. Mary acquaints him with the works of Shakespeare and he is introduced to modern art by a rich, young, attractive American widow, Elsa Morganthal Strauss-Almerson (Cher). Elsa sets up a financial trust for Luca's future because his late mother was Elsa's dressmaker, to whom Elsa said she still owed money for her services. Meanwhile, Lady Hester Random (Maggie Smith), who is forever reminding everyone that her late husband was Britain's Ambassador to Italy, fails to keep her disdain for Elsa a secret.

One day, when the ladies are in a restaurant for afternoon tea, it is vandalized by Fascists. The environment then begins to become troubled for the expatriate community due to the rising tide of Italian Fascism. In spite of this, Lady Hester Random retains an admiring faith in Benito Mussolini. She takes it upon herself to visit him, along with an English journalist, to obtain his assurance that the community will be safe. She is placated however, because of her public ties to Britain, as she satisfactorily goes on to receive "Tea with Mussolini." The next day the front page of the local paper features a photo of Lady Hester and Mussolini, which she frames and proudly displays to local officials at every opportunity.

Despite this, the political situation continues to deteriorate. The Scorpioni can no longer have their afternoon teas at the Uffizi Gallery. Luca's father decides that Italy's future is with Germany rather than the United Kingdom. He removes Luca from Mary's care and sends him away to an Austrian boarding school so that he can learn the language and be assured of a safe and prosperous future.

Several years later, a more grown-up Luca (Baird Wallace) returns to Florence with the intention of using Elsa's trust fund to study art. Luca attempts to locate Mary at her former apartment and the train station (where all British nationals are fleeing the country following Mussolini's declaration of war on Great Britain and France), but finds that she moved in with Lady Hester and the other "die-hards". He arrives at Lady Hester's house just as the English women are being rounded up and put onto a transport truck by police. For his protection, Lady Hester forces her grandson Wilfred to disguise himself as a woman, and calling him "Lucy". Arabella becomes upset when the guards won't let her take her beloved dog so Mary shouts from the transport for Luca to take care of him. As the women are driven off Luca follows with a friend and finds they are being taken to the nearby city of 100 towers, San Gimignano. The women are appalled by their new quarters, which are well below their accustomed standard. Although snubbed by the ladies in the past, Elsa, who along with her American compatriot, Georgie, remains free, takes pity on the ladies. Elsa charges Luca with the task of giving money and fake documents to the guards instructing that the women be moved to an upper-class hotel. Believing that Mussolini himself issued the orders, Lady Hester is delighted and quickly asserts her authority over the hotel staff, eagerly brandishing the newspaper photo. The eccentric, would-be artist Arabella (Judi Dench) and archaeologist Georgie (Lily Tomlin) decide to restore the famous St. Fina Ghirlandaio frescos at a nearby chapel, which had started to fade and flake from the walls.

As the war progresses, oppression against Jews starts to grow. Luca experiences this first hand when his art teacher is arrested during a class and taken away. Elsa attempts to help some Jewish families flee by providing them with fake passports. She asks Luca, who's becoming enamoured with her, to deliver them.

Luca, who fools local police on his night-time errands for Elsa, becomes jealous when she forms a romantic alliance with a shrewd young Italian lawyer. On December 7th, 1941 Pearl Harbor is attacked and it is announced that the United States has entered the war. The police soon put the Americans Elsa and Georgie in the hotel along with the English women. But, as a Jew, Elsa is in far greater danger than the other women. In return for her boyfriend's promise to help her flee to Switzerland where they would be safe together, she signs over her valuable collection of modern art as well as all of her money and other possessions to him. However, as Mary now discovers, Elsa's boyfriend had no such intention and was plotting all along to betray her to the Gestapo. Mary scolds the jealous Luca and tells him to grow up, as he already knew about the plot but didn't tell Elsa. Elsa refuses to believe the betrayal and therefore still plans to meet her boyfriend in Switzerland -- although she'll most likely be caught at the border using her "death warrant" passport provided by him. Desperate, Mary goes to the women for help. At first Lady Hester scorns the idea of helping Elsa, believing she owes her nothing. Mary is then forced to reveal that it was not Mussolini but Elsa who arranged and financed their stay at the luxurious hotel. Shamed, Lady Hester agrees to convince Elsa of the truth. She goes to Elsa, who has isolated herself in her room, thanks her for her generosity, and assures her that her boyfriend will not be keeping his promise; instead he will be waiting for the Gestapo to seize her. Surprised by Lady Hester's change of heart, Elsa believes her and consents to an escape plan hatched by Mary, Luca, and Wilfred (who has already fled the hotel to join the Italian resistance movement). Funded by the money Elsa earlier put into trust for Luca's future, he, Wilfred and his friends in the underground arrange for Elsa to flee during the night. Just before she boards a tiny rowboat taking her out to sea to rendezvous with a fishing boat, Elsa tells Luca how she once helped his young mother decide to go through with her pregnancy, thus saving his life and allowing him to be there to now save hers.

Against the threat of bombs going off in the outskirts of San Gimignano, Georgie and Arabella anxiously protect the precious St. Fina frescoes using piles of sandbags. Before fleeing the town, the Germans lay explosives to blow-up some of the towers in San Gimignano and Arabella becomes frantic. Following her lead, the English women immediately take action and all tie themselves to one of the buildings, bravely standing up to the pistol aimed at them by a frustrated Nazi officer. Within seconds, however, the officer receives orders to abandon the city and he and his men quickly retreat, leaving the women behind and the towers untouched. The city rejoices as Scottish Allied troops arrive, with a grown-up Luca riding in the commander's jeep as his Italian interpreter. Luca gently informs his superior that the British women, whom they are there to liberate, will not be easily ordered about. True to form, Lady Hester refuses to cooperate with the evacuation plans, and the other women join her, resolving to resume their former lives in Italy. Mary is thrilled to see that her beloved Luca has become the "English gentleman" of his father's dreams after all. Arabella and Georgie rush into the chapel, past the rubble, and are relieved to find the frescoes safe and sound.

Closing texts inform us, among other things, that the Scorpioni later resumed their afternoon teas (although, as Lady Hester reminds them, "Things are not the same as they were"), and that Luca went on to become an artist and help in the making of the film — i.e., as director Franco Zeffirelli.

Lady Hester Random is based upon a real resident of Florence whom Zeffirelli knew in his childhood. Zeffirelli mentions her and a couple of other ladies of the Scorpioni in his autobiography. He said: "I don't remember if she was called Hester, but I remember this terrible, fantastic woman. She was the dowager of the community. I remember the many outrageous things she did because she could afford to be arrogant and bossy."

The film opened tenth at the U.S. Box Office with $1,633,183, eventually grossing a total of $14,401,563, a sum considerably more than its budget. It is also a notable difference compared to Cher's previous film in a starring role, Faithful, which was a Box Office disappointment, earning just $2,104,439 in 1996.