Life is Beautiful opens on a note of hilarity as the protagonist, Guido, and his best friend, Ferruccio, rocket down a country slope, the brakes on their rickety old car having given way. They pass through a parade, and the audience is immediately aware of where we are: the bystanders, believing Guido to be a Fascist leader, all raise their arms in the "Heil Hitler" sign. While Ferruccio attempts to fix the car, Guido happens upon a little farm, where the woman who is to become the love of his life literally falls from the sky into his arms. "Good morning, princess!" he cries, grinning widely.
Guido and Ferruccio find lodgings with Guido's uncle, Eliseo, who recently has come under attack by Fascists. Eliseo also helps Guido to get a job as a waiter in a fancy hotel. Guido visits a moneylender in an effort to secure a loan to open up a bookshop, and he soon realizes that the disagreeable man, Amico, who refuses his loan is also the betrothed of the woman who fell into his arms, Dora. The following series of events demonstrates what a truly extraordinary character Guido is: he is uniquely capable of manipulating his surroundings so that events that are "coincidences" take on the aura of genuine magic. It is this ability that ultimately sways Dora: on one rainy night, Guido virtually steals her away from the insipid Amico and takes her on a journey through her imagination to a place where pillows can be used as skirts, the Virgin Mary throws keys from the heavens, and red carpets unroll through darkened piazzas.
At Dora's engagement party to Amico, she decides once and for all to run away with the mysterious man who keeps appearing out of nowhere. Guido rides Uncle Eliseo's horse (which has been painted green and graffitied with the words "Jewish horse") into the ballroom and spirits her away to the home where they are to leave for several joyful years. They have a son, Giosue, who has his father's enthusiasm for life and his mother's tendency to hiccup.
A far darker event occurs: Guido begins to be harrassed by the Fascists. Soon he, Eliseo, and Giosue are taken away on a train to a concentration camp. Dora, refusing to be left behind, insists that she be allowed to go to the camp as well.
At the camp, Guido decides that he will create an elaborate ruse to protect his son from the horror of their situation. He tells Giosue that his own father took him on a "trip" just like this one when he was a boy, and that if he stays silent, does not cry or ask for his mother, and obeys all the rules, he will win points. After he wins 1,000 points, he will get first prize: a real tank. Giosue, excited at the idea, approaches the camp as a game rather than what it truly is: a prison.
The three adults go in very different directions once at the camp. Eliseo, since he is an old man, is taken to the showers. Dora goes to the women's camp, where she hears stories about the children being slaughtered and fears for the safety of her husband and son. Guido and Giosue go to the barracks, where Guido continues to imbue the darkness of the camp with an air of levity and joy. He even commandeers the loudspeaker so that he and Giosue can cry out to Dora that they miss her and love her.
Guido's hope for escape arrives when he is asked to be a waiter at an event where Doctor Lessing, an old friend of his from the restaurant back home, now a doctor in the Nazi army, will be dining. Doctor Lessing, however, ignores the gravity of Guido's situation; it seems that he only wanted Guido to wait tables at the party because he needed help solving a riddle. Desolate, Guido takes Giosue back to the barracks, but not before stopping to play the Offenbach opera that he and Dora once attended over the loudspeaker in an effort to lift his wife's spirits.
Soon the war is over, and the camp is thrown into a state of confusion and panic. All of the prisoners are being loaded onto trucks that are returning empty. Desperate to warn Dora, Guido tells Giosue to hide in a cabinet until everyone has gone, dons women's clothing, and sneaks over to the women's camp. He is discovered, but as he is marched off to his death, he manages to give his son one last moment of joy: as he walks by the cabinet where Giosue is hiding, he throws his son a wink and does a funny little walk--playing the game to the bitter end.
When morning arrives Giosue, seeing that everyone has gone, tentatively crawls out of the cabinet. He looks around in confusion and then hears a rumbling in the distance. His eyes light up: a real tank is rounding the corner! He has won! An American soldier pulls him up into the tank, and they ride out of the camp. As they pass the crowds of escaped prisoners, Giosue recognizes his mother and runs to her. She wraps him in a tight embrace. "We won!" he cries out. "Yes, we won," Dora says.
