Happy Gilmore (Adam Sandler) is an aspiring ice-hockey player who masters a powerful and dangerous slapshot that his late father taught him as a child. However, his aggression and poor skating ability render him unable to join any hockey team. His grandmother, (Frances Bay), with whom he has lived almost all his life, has not paid her taxes for many years. As such, she owes $270,000 to the IRS and the house that Happy's grandfather "built with his bare hands" is about to be seized. Grandma Gilmore is forced to temporarily move into a retirement home run by Hal, the retirement home's unpleasant and cruel manager (Ben Stiller in an uncredited role). While repossessing Grandma's furniture, a pair of movers challenge Happy to hit golf balls, and his unorthodox hockey slapshot hits 400 yards three times, winning $40 as a result. This gives Happy the idea to go to the driving range to hustle golfers with his swing. When former Golf star and current Club Pro Chubbs Peterson (Carl Weathers) (who was forced to retire when his hand was bitten off by an alligator) sees Happy's shot, he convinces Happy into entering a local tournament by telling him he can make the money to buy back his grandmother's house. Happy wins the tournament and earns a spot on a Pro Golf Tour. Chubbs advises Happy to hold off on joining the tour, so that Chubbs can make him a better all around golfer. Against Chubbs' advice, Happy joins the tour immediately after learning he can make enough money to buy back Grandma's house.
On the Tour, Happy makes an instant enemy of pretentious and arrogant star pro Shooter McGavin (Christopher McDonald), who sees Happy as a detriment to golf and tries to thwart any attempt to steal his thunder. In addition, Happy discovers that although he has a powerful drive, his putting is terrible, and his violent outbursts and lack of golf etiquette cause him problems, which gives Shooter an opening to ask Doug Thompson (Dugan), the head of the tour, to expel Happy. Happy's antics are garnering the tour's highest television ratings and bringing more fans into tournaments, and Shooter's request is denied. To help Happy cool down and start acting more professionally, tour PR head Virginia Venit (Julie Bowen) is assigned to him by the tour. In addition to a relationship forming between the two, Happy begins to develop a cooler head while continuing to improve in tournaments much to the chagrin of Shooter, who decides to take matters into his own hands and hire Donald, a mentally unbalanced fan of Shooter's (Joe Flaherty) to heckle Happy at the next tournament, a celebrity pro-am.
At the tournament, where Happy is paired with Bob Barker, Donald starts distracting and intimidating him by shouting out, "Jackass!", when he's taking his swing. He takes Happy's focus off his game so much that he plays terribly. Exasperated at Happy's poor performance, Barker even begins heckling him before they break into a full scale brawl, which Barker wins and is also enough to have Happy suspended from the tour and fined $25,000. All is not lost as Happy secures an endorsement deal with Subway, which gives him enough money to buy back Grandma's house and pay the fine. What Happy doesn't know is that the house is being sold at an auction, and he is unable to buy it. He then discovers that, in a further effort to get Happy to stop playing golf, Shooter has bought the house himself in order to make a deal - Happy can have the house back, on the grounds he quits the tour. As the house was his sole motivation for playing the golf, Happy immediately accepts, but is talked out of it by Virginia, who says Grandma would much rather see Happy succeed at life than get the house back. Happy then makes a bet with Shooter: if Happy finishes higher at the Tour Championship, he gets the house back; if Shooter finishes higher, Happy quits the tour, and golf for good.
Although Shooter agrees to the bet, Happy realizes that he needs to get better in a hurry if he wants to win, and seeks out Chubbs. Together they head to a mini-golf course so Happy can improve his putting, which he does. As a token of his gratitude Happy gives Chubbs a present: the head of the alligator that took his hand (which Happy had killed in an earlier tournament while retrieving his ball). The gift does not have the intent Happy planned on, as Chubbs is startled by it and stumbles back, causing him to fall out an open window to his death.
Determined to win the Tour Championship for Chubbs, Happy goes head-to-head with Shooter. Shooter is stunned that Happy has been keeping up with him, and by the end of the third day of the tournament Happy is leading Shooter. Determined to win the tournament, which he has never done, Shooter once again calls on Donald. The next day Shooter's plan comes into action, as Donald hits Happy with a Volkswagen Beetle, which he proceeds to ram into a television tower at the 18th hole. Happy is moderately injured and has lost the ability to hit the long drive and as such drops from the lead and trails Shooter by several shots heading into the final holes. However, after applying a lesson from Chubbs, and receiving an important morale boost from Grandma, who had come to watch the tournament he is able to refocus and ties for the lead going to the 18th hole. After Shooter makes his shot for par, the TV tower collapses and blocks Happy's shot for birdie. Happy is forced to play his shot with the tower in the way, and once again uses what Chubbs taught him to make a trick shot to win the Tour Championship and the house.
Shooter is then beat up by Happy's old boss, Mr. Larson, and an angry mob of spectators, after he steals the gold jacket from Doug in a fit of hysteria after Happy wins. The film closes with Happy being congratulated by the two-handed ghost of Chubbs, Abraham Lincoln, and the alligator.