"The Kid" is an aspiring and talented, but troubled Minneapolis musician with a difficult home life in which he avoids his house every chance he gets by spending his time rehearsing with his band, The Revolution, during the day and performing at night. His main antagonist is fellow musician Morris Day and his group The Time who are seeking a way to expel Kid from the First Avenue nightclub where both bands perform on a nightly basis. Morris knows that the Kid's guitarist, Wendy, and keyboardist, Lisa, are growing disgruntled with his leadership of the band. Wendy and Lisa cut an instrumental demo called "Slow Groove" which they give to Prince, asking him to consider playing it with the band. His reluctance to listen to it makes Wendy and Lisa furious, but throughout the course of the film, the Kid listens to the tape several times in private.
Morris convinces the club's owner to form a more commercial girl group to replace The Revolution. He targets the Kid's girlfriend Apollonia for the group, which makes the Kid jealous and constantly suspicious. He even begins to physically abuse Apollonia, imitating his father's pattern of abuse towards his mother. When the Kid comes home once to find his mother badly beaten outside, he rushes inside to confront his father, who is downstairs playing a melancholy song on the piano. His father warns the Kid never to get married.
At the club, the Kid responds to the internal band strife and pressure to draw more crowds with an uncomfortably edgy performance of "Computer Blue", which only makes his problems worse. Everyone warns him that he is headed down the same unsuccessful path that ruined his father's career as a musician. The Kid returns home again to find it a mess. His father is down in the basement with a gun and appears to commit suicide just as the Kid turns on the light. After a night of torment, the Kid sits at the piano and fleshes out "Slow Groove".
That night at the club, everyone walks on eggshells around the Kid, not sure of how to handle the situation. When he climbs onstage, no one knows what to expect. After an uncomfortably long silence, he announces that the band is going to play a new song by Wendy & Lisa. The finished song turns out to be "Purple Rain". The crowd responds positively to the performance. As the Kid seems to be about to run away, he hears the cheering of the crowd and returns to the stage to perform two encores. We see a series of scenes intercut with the concert performance. One shows the kid organizing his father's sheet music. Another shows the Kid visiting his father in the hospital bed, the father's head wrapped in a heavy bandage, the mother asleep draped across the bed her hand on her husband's hand. And finally we see the Kid has been joined by Apollonia in the basement. They smile and kiss. Cut back to the performance and the film closes with the crowd cheering on Prince.