In December 1941, American expatriate Rick Blaine owns a nightclub and gambling den in Casablanca. "Rick's Café Américain" attracts a varied clientele, including Vichy French and German officials, refugees desperate to reach the neutral United States, and those who prey on them. Although Rick professes to be neutral in all matters, he ran guns to Ethiopia during the Second Italo-Ethiopian War and fought on the Republican side in the Spanish Civil War.

Petty crook Ugarte boasts to Rick of "letters of transit" obtained by murdering two German couriers. The papers allow the bearers to travel freely around German-occupied Europe and to neutral Portugal; they are priceless to the refugees stranded in Casablanca. Ugarte plans to sell them at the club, and persuades Rick to hold them. Before he can meet his contact, Ugarte is arrested by the local police under Captain Louis Renault, the unabashedly corrupt prefect of police. Ugarte dies in custody without revealing that Rick has the letters.

Then the reason for Rick's cynical nature—former lover Ilsa Lund—enters his establishment. Spotting Rick's friend and house pianist, Sam, Ilsa asks him to play "As Time Goes By". Rick storms over, furious that Sam disobeyed his order never to perform that song and is stunned to see Ilsa. She is accompanied by her husband, Victor Laszlo, a renowned, fugitive Czech Resistance leader. The two need the letters to escape to America, as German Major Strasser has come to Casablanca to arrest Laszlo.

When Laszlo makes enquiries, Signor Ferrari, an underworld figure and Rick's friendly business rival, divulges his suspicion that Rick has the letters of transit. Laszlo returns to Rick's cafe that night and tries to buy the letters. Rick refuses to sell at any price, telling Laszlo to ask his wife the reason. They are interrupted when Strasser leads a group of German officers in singing "Die Wacht am Rhein". Laszlo orders the house band to play "La Marseillaise". When the bandleader looks to Rick, he nods his head. Patriotic fervor grips the crowd and everyone joins in, drowning out the Germans. Strasser demands Renault close the club, which he does.