Act I
As a chorus of children boast about being their parents' miracles, the ballroom dancing-obsessed Mrs. Wormwood gives birth to a baby girl called Matilda. The doctor thinks Matilda is the most beautiful child he has ever seen, but Mrs. Wormwood is only worried about a dancing contest she has missed. Similarly shallow, Mr. Wormwood—a used-car salesman and television addict—dismisses the child when he realizes she is a girl ("Miracle"). Five years later, Matilda is an avid reader and lives unhappily with her parents and her older, gormless brother Michael. The Wormwoods are oblivious to her genius and frequently mock and verbally abuse her. Matilda adds some of her mother's hydrogen peroxide to her father's hair oil, leaving Mr. Wormwood with bright green hair ("Naughty").

At the local library Matilda tells Mrs. Phelps a story about a world-famous acrobat and escapologist couple who long to have a child but they can't. To distract themselves from their sadness they announce to the world's press that they will perform an exciting and dangerous new act ("Once Upon a Time"). The next day is Matilda's first day at school ("School Song"). Her teacher Miss Honey is impressed by Matilda's precociousness and ability, so she recommends that Matilda be moved to the top class with the older children ("Pathetic"). However, the child-hating, disciplinarian headmistress Miss Trunchbull, a former world champion hammer thrower, dismisses Miss Honey's suggestion and lectures her on the importance of following rules ("The Hammer").

At the Wormwoods' house, Mr. Wormwood is frustrated about losing a sale of worn-out cars to a group of rich Russians. He takes his frustration out on Matilda and destroys one of her library books, prompting her to put superglue around the rim of his hat and fix it to his head ("Naughty" reprise). At school, Matilda is told of Miss Trunchbull's cruel punishments, including the Chokey: a tiny cupboard lined with sharp objects in which she locks disobedient children for hours ("The Chokey Chant"). Matilda sees Miss Trunchbull spin a small girl, Amanda Thripp, around by her pigtails and throw her across the playing field. Meanwhile, Miss Honey decides to visit the Wormwoods to express her recommendation that Matilda be put in an advanced class. She meets Mrs. Wormwood and her dance partner Rudolpho. It soon becomes apparent that Mrs. Wormwood doesn't care about her daughter's intelligence, and she mocks Miss Honey and Matilda's interest in books and intellect ("Loud"). Alone outside the Wormwood's house, Miss Honey is desperate to help Matilda but feels powerless to do so ("This Little Girl").

Matilda tells Mrs. Phelps more about the acrobat and the escapologist. The acrobat's sister, a former world champion hammer-thrower who loves to scare small children, has arranged their performance. The escapologist announces that the performance has been cancelled because the acrobat is pregnant. The crowd is thrilled but the acrobat's sister is furious at the prospect of refunding the crowd's money and produces a contract binding them to perform the act or go to jail ("The Great Day Arrived"). At school, Bruce Bogtrotter, a boy in Matilda's class, has stolen a slice of Miss Trunchbull's personal chocolate cake. Miss Trunchbull punishes Bruce by forcing him to eat the entire cake in front of the class, who bravely support him ("Bruce"). After Bruce has finished the cake, the class celebrates his success but Miss Trunchbull drags Bruce away to the Chokey.

Act II
Mr. Wormwood advises the audience against reading in favor of watching television ("Telly"). Lavender, a girl in Matilda's class, tells the audience that she is going to put a newt in Miss Trunchbull's jug of water later on. The children gather and sing about their hopes for when they grow up ("When I Grow Up"). Matilda resolves to end Miss Trunchbull's cruelty. She tells Mrs. Phelps more of the story of the acrobat and the escapologist. Bound by their contract, they perform their feat, which goes well until the last moment when the acrobat is fatally injured, living just long enough to give birth to a girl. The escapologist invites the acrobat's sister to move in with him to help look after his daughter. Unknown to the escapologist, the girl's aunt is secretly cruel to her, forcing her to perform menial tasks and abusing her verbally and physically ("The Trick Started Well").

Mr. Wormwood returns home from work pleased because he has sold his worn-out cars to the wealthy Russians ("I’m So Clever"), having used an automatic drill to wind back their odometers. Matilda is annoyed at her father's deceit and scolds him, which angers him and he locks her in her bedroom. That night, Matilda continues the story of the acrobat and the escapologist. After years of cruelty, the aunt's rage has grown; one day she beats the child, locks her in the cellar and goes out. That evening, the escapologist returns home early and discovers the extent of the aunt's cruelty. As he comforts his daughter, he promises her he will always be there for her. Filled with rage, he runs out to find the aunt but is never seen again ("I'm Here").

The next day, Miss Trunchbull forces Miss Honey's class to undergo a gruelling physical education lesson ("The Smell of Rebellion"). Miss Trunchbull discovers the newt in her jug; she accuses one of the boys, Eric, who has already riled her during the lesson. She starts to punish him. Matilda scolds Miss Trunchbull for being a bully. Miss Trunchbull verbally abuses Matilda, but Matilda discovers she can move objects with her mind ("Quiet"). She tips over the water jug and the newt lands on Miss Trunchbull, and climbs up her leg. After Miss Trunchbull leaves Matilda demonstrates her powers to Miss Honey, who is surprised and invites Matilda to her house for tea. On the way Matilda admits that her father is not proud of her and calls her names.

Miss Honey tells Matilda of her cruel and abusive aunt, who looked after her as a child after her parents died. When Miss Honey first became a teacher, her aunt produced a bill detailing everything Miss Honey consumed as a child, along with other expenses, and forced her to sign a contract binding her to pay it all back. Desperate to escape, Miss Honey found refuge in an old farm shed which she moved into and lives in abject poverty. Despite this, Miss Honey finds beauty in her meagre living conditions ("My House"). As Miss Honey tells her story, she produces a scarf which Matilda recognizes from her story of the acrobat and the escapologist—which she realizes is the true story of Miss Honey's childhood, and that her wicked aunt is Miss Trunchbull.

Back at school, Miss Trunchbull forces the children to take a spelling test; anyone who misspells a word will be sent to the Chokey. The children fail to misspell a single word, so Miss Trunchbull invents a word in order to be able to punish Lavender. As Lavender is about to be taken to the Chokey, her classmates deliberately misspell simple words, telling her she cannot send them all to the Chokey. However, Miss Trunchbull has built many more Chokeys. Matilda uses her powers to write on the blackboard and convinces Miss Trunchbull that it is the ghost of Miss Honey's father, demanding that she give his daughter back her house or he will get her ("Chalk Writing"). Miss Trunchbull runs from the school screaming and the children celebrate their freedom ("Revolting Children").

At the library, Miss Honey and Mrs. Phelps relay the aftermath of the events. A few days after Miss Trunchbull ran away, Miss Honey's parents' will has been found; they left all their money and their house to her. Miss Trunchbull is never seen again and Miss Honey becomes the new headmistress of the school. Matilda cannot use her powers again and Miss Honey is sad that a child who has helped others this way is stuck in an unloving home. The Wormwoods arrive at the library in a panic, telling Matilda that she must leave with them because they are fleeing to Spain. Mrs. Wormwood states that the wealthy Russians that her husband was dealing with are the Russian mafia, who are unhappy about being sold broken cars. Miss Honey asks if Matilda can stay with her, but the Russian mafia arrive before a decision can be made. As the Wormwoods hide, Sergei is impressed and moved by Matilda's intellect and respect and he agrees not to harm the Wormwoods providing he never has to deal with Mr. Wormwood again ("This Little Girl" reprise). Mr. Wormwood agrees to let Matilda live with Miss Honey as the Wormwoods leave for Spain. ("When I Grow Up" reprise / "Naughty" reprise II)