Williams plays Daniel Hillard, an out-of-work actor whose interior decorator wife Miranda (played by Field) wants a divorce. Since Daniel has no steady source of income, Miranda will get primary custody of their three children and Daniel will only have limited visitation rights. Miranda places an ad for a housekeeper, and with the makeup skills of his brother and his own acting talent, Daniel comes to the Hillard residence as an older woman named Euphegenia Doubtfire. Daniel gives her name over the phone after reading a news headline 'Doubt Fire Was Accidental''.
As Mrs. Doubtfire, Daniel is able to see his children every day, giving him the opportunity to be the firm father figure that he wasn't before the divorce. The difference shows in the three children (Wilson plays the youngest), and Miranda remarks one night that something about Mrs. Doubtfire is very familiar.
Daniel is revealed beneath the Mrs. Doubtfire mask one evening when dining out with the Hillard family on the same night he is at dinner with the executive producer at his new job in a television studio. He keeps switching between Daniel and Doubtfire until his mask comes off as he performs the Heimlich maneuver on Brosnan's character.
In family court, Daniel confesses his need to be with his children, but custody is awarded wholly to Miranda. They all miss having him around, though, and one day they see "Aunt Euphegenia's House," a new children's TV show of which Daniel (as Mrs. Doubtfire) is the star. This evidence allows Daniel and Miranda to agree to joint custody of their three children, and the movie ends.
According to Williams, the studio had wanted the parents to be reunited in the final reel; but both he and Field resisted this, thinking it too unrealistic and likely to give false hope to the children of divorced parents.