Billy Madison is the 27 year-old son of Bryan Madison, a very rich man who has made his living in the hotel industry. Billy stands to inherit his father's empire, but only if he can make it through all 12 grades, 2 weeks per grade, to prove that he has what it takes to run the family business.
Will Loomis is living with his mentally handicapped sister Violet, who wants a younger child to play with, so Will 'kidnaps' one (and then another) child from the local children's home. The child is told it is dead and gone to heaven. Will and Violet try to make their farm a little piece of heaven for the kids, while the authorities wonder what has happened to the kidnapped children.