A cartoonist/artist starts using the inane mutterings of his sleeping idiot of a roommate for his published strip. Soon, the "sleep-talking" starts to smack of political conspiracies and the CIA starts investigating the two. Meanwhile, two lovely models, living next door attempt to make boyfirends out of the pair.

While artist Rick Todd struggles to make a living painting billboards, his best friend and assistant, Eugene Fullstack, a would-be writer of children's books, is so absorbed in his Bat Lady comic books that he gets them both fired, a pattern that the two have continuously repeated since moving from Steubenville, Ohio to New York City. Although poverty has reduced the roommates to eating nothing but beans and ketchup, the innocent Eugene remains happy in the fantasy world he has created in his mind to protect himself from the harsh realities of life. At night, however, Eugene's fantasies keep Rick and their entire Greenwich Village building awake, as he recites horrific "Vincent the Vulture" stories in his sleep. Learning that a "successful artist" has moved into the building, Eugene goes up to her apartment to introduce himself, only to be nearly scared to death when "The Bat Lady" answers the door. Eugene soon learns that the artist is actually comic book illustrator Abigail Parker, and "The Bat Lady" is Bessie Sparrowbush, Abby's model and roommate. The next morning, after Abby is berated by Murdock, her publisher, who informs her that the latest issue of Bat Lady does not contain enough blood and violence, she angrily quits. Hoping to gain the newly vacated job, Rick directs Eugene to romance Bessie, who is also Murdock's secretary, so that his name can added to the publisher's list of available cartoonists. A follower of astrology, Bessie's horoscope tells her that Eugene is her "true love," but he shows little interest in the pert redhead, having lost his heart to "The Bat Lady" and not realizing that they are one and the same. Rick, too, is inamored of Abby, even though she has little interest in him until he agrees to be her model for an advertising campaign. Rick's romantic chances with Abby are diminished when he secretly takes her old job with Murdock, using Eugene's original "Vincent the Vulture" dreams as his subject matter. Eugene has now rejected his old comics, however, going so far as to join Abby on a television talk show protesting their violent influence on children. Unknown to Eugene, while he and Abby work on a series of children's books derived from his wholesome "Goosie Goose/Freddie the Fieldmouse" stories by day, Rick transcribes his friend's violent nightmares into a highly successful comic series at night. Included in one of the comics, however, is part of a top secret rocket formula sought after by a group of foreign spies, headed by Sonia, a beautiful Hungarian who calls herself Mrs. Curtis. Rick is quickly informed of the situation by the United States Secret Service, and he offers the agency his full cooperation, as long as Eugene is not told that he is working for Murdock. Discovering that Eugene is the true source of the "Victor the Vulture" stories, Sonia and her gang abduct Bessie so that Sonia can dress as "The Bat Lady" at the Artists and Models Ball. When "The Bat Lady" invites Eugene out for a romantic rendezvous, the smitten writer readily agrees and is whisked away to the spy's hideout. Rick and the newly freed Bessie are quick to follow, and they arrive at the spies' mansion just as a drugged Eugene begins to recite the secret formula. Revitalized by Bessie's kiss, Eugene single-handedly defeats the spies, and by mistake, the Secret Service agents as well. With the foreign agents safely under arrest, Rick is reunited with Abby, and Eugene discovers that Bessie is the true "Bat Lady" of his dreams.