A Washington hostess takes an assignment as ambassador to the world's smallest nation.

In 1951, Sally Adams, a wealthy Oklahoma widow who has become Washington D.C.'s premiere hostess, is sworn in as the U.S. Ambassador to the Grand Duchy of Lichtenburg. Although the boisterous Sally has no idea where Lichtenburg is, she is thrilled by her appointment and throws a farewell party for herself that evening. At the party, reporter Kenneth Gibson, who had interviewed Sally that afternoon, asks her to hire him as her press attaché and assures her that he is very knowledgeable about European politics. Sally demurs, but when Kenneth helps her with a speech she must give for a newsreel, she changes her mind and sends him ahead to Lichtenburg. At the U.S. embassy in the quaint and lovely country of Lichtenburg, Kenneth attempts to calm Pemberton Maxwell, the embassy's snobbish charge d'affaires, who assumes that he will be able to intimidate a female ambassador. Upon meeting her, Maxwell is outraged by Sally's insistence that he call her "Madam" and her determination to run things as she sees fit. Meanwhile, at the palace, Grand Duke Otto and Grand Duchess Sophie are negotiating the marriage of their niece, Princess Maria, to Middledorf's pompous Prince Hugo. The arranged marriage will be politically advantageous for both countries, although the Middledorf officials are concerned that impoverished Lichtenburg will not be able to raise the promised dowry. Prime Minister Sebastian and August Tantinnin, the minister of finance, are certain that the inexperienced Sally will agree to a large American loan, although when they approach her, Sally, who has already been apprised of the situation, turns them down. Sally's attitude changes, however, when she meets the handsome, charming foreign minister, Gen. Cosmo Constantine. Sally offers Cosmo as much money as he wants, but he insists that Lichtenburg needs to solve its problems without foreign aid. After Cosmo departs, Kenneth also leaves and goes to a department store to buy a hat for that evening's ball at the palace. At the store, Kenneth is mistaken for a salesclerk by a lovely young woman, who turns out to be Maria. Kenneth and Maria are immediately attracted to each other, although Maria cautions him that she cannot talk to him until they have been formally introduced. At the ball, Maxwell's worst fears are realized when Sally falls while curtseying and makes a faux pas , calling the people of Lichtenburg Dutch because their country is a duchy, but her natural appeal shines through and she wins over the duke and duchess. Sally also insures that Kenneth is introduced to Maria, and while the young couple waltz, she dances with Cosmo. Kenneth is dismayed, however, when Maria runs off after sharing a passionate kiss with him. Sally's happiness is tempered by Maxwell's insinuation that Cosmo is romancing her only to obtain the loan, which he wants despite his protests. Sally and Kenneth attempt to comfort each other but spend a miserable week until the annual fair opens. Cosmo is baffled by Sally's coldness to him, but she soon finds herself unable to resist him. Kenneth finds Maria and confesses his deep feelings for her, but after she brushes him off to defuse a potential fight between him and Hugo, Kenneth gets wildly drunk at a beer garden. Kenneth is arrested for disorderly conduct, and the next morning, Maxwell attempts to get him fired. Sally destroys Maxwell's report but warns Kenneth to be more discreet. She then receives a call from Maria, who wants to meet Kenneth in the underground passageway linking the embassy and the palace. There, the princess admits that she returns his feelings and assures him that she will not be marrying Hugo, because without the American loan, there will be no dowry. Soon after, Sally dines with Cosmo and falls so deeply in love with him that she asks her good friend, President Harry Truman, if the United States can spare $100 million. Later, senators Brockway, Gallagher and Wilkins form an investigatory committee and come to Lichtenburg, where Maxwell is dismayed to learn that they are investigating the feasibility of a loan to the small country, not Sally's management. Sally throws a lavish party that evening and introduces the senators to Cosmo, who was prime minister by the Lichtenburg cabinet members after they discovered that the senators will deal only with him. Cosmo emphatically tells the senators that he does not want foreign aid, and they are so impressed with his statesmanship that they offer him $200 million. Horrified, Cosmo storms out, pausing only to tell Sally that she has destroyed his life's work. Crushed, Sally commiserates with Kenneth, who has been told by Maria that they must end their relationship because she will now have to marry Hugo. Their misery is completed when Truman orders Sally home, for Sebastian has complained that she was interfering with Maria's engagement to Hugo. Back in Washington, Sally hosts a welcome home party for herself, at which the senators congratulate her on saving the country $200 million, as Cosmo convinced the parliament to refuse the loan. Kenneth then informs Sally that Cosmo, who has been named Lichtenburg's ambassador to the United States, was seen traveling with a female companion. Sally puts on a brave face when Cosmo arrives and is delighted to learn that his companion, Miss Hammenschlaffen, is Maria. Sally sends Maria out to the balcony to greet Kenneth, and the excited former princess tells him that she has refused the throne in order to marry him. Inside, Cosmo confers the Order of Philip on Sally, which entitles her to be called a Dame. Replying that it is "quite a promotion," Sally happily embraces Cosmo.