Warning: Wikipedia contains spoilers
Kudrow and Sorvino play Michelle Winberger and Romy White (respectively), two 28-year old women living together in Los Angeles, CA. They are both unmarried; Romy works at a car rental place and Michelle is unemployed. They live a life of partying and fun and don't really take life seriously. Out of nowhere they received the invitation to their high school reunion in small-town Arizona. Desperate to make a good impression, they make last ditch attempts to get boyfriends and better jobs. This is interspersed with clips showing the social torture they endured during their high school days.
Failing that, they rent an expensive car and decide to attend the reunion with made up stories about their lives. Coming up with what they think is a highly impressive story, they decide to claim that they are very successful businesswomen who invented Post-It notes. However, during their drive, they get into an argument about semantics (Romy claims people will only believe Michelle is smart enough to have come up with making the notes yellow) and their friendship dissolves.
When they arrive at the reunion they discover that all of the girls who made fun of them are pregnant, overweight and in unhappy marriages. The football jock on whom Romy had a crush (and who consequently stood her up at their prom) is unmarried, gorgeous as ever, and hits on her. Sandy Frenk (Alan Cumming,) the nerd who had a crush on Michelle, turns out to be incredibly wealthy and gorgeous, and he hits on Michelle. Soon they are both winning awards as most successful members of their graduating class, and they part ways with their respective new lovers.
Cut forward 70 years and Romy is on her death bed. Michelle calls her up to make amends only to rehash the same argument they had in the car those many years ago. Romy dies, as Michelle puts it, "an old hag on her death bed," and they never get a chance to resolve their issues...
...until Michelle wakes up in the car, parked outside of the hotel where the reunion is being held. The entire sequence following the arguement was a dream. Michelle enters the conference and begins to spread around her story about Post-Its. Unfortunately, Romy and Michelle's lie is found out when alum Heather Mooney (Janeane Garofalo) exposes that in business school she learned that 3M corporation invented Post-Its.
Humiliated, Romy and Michelle resolve their fight and decide to just be themselves and not care about other people's opinions. However, classmate Christy Masters (Julia Campbell) mocks their lie during a presentation over microphone. Horrified, they flee the hotel. Outside, though, they reaffirm their decision to be themselves. They change out of their "businesswoman outfits" into sexy, funky club clothes, and return. They confront Christy and accuse her of being a "bad person with a cold heart" for all of the teasing they had to endure, both then and at the reunion.
Just as Christy attempts to mock their clothes (which Romy and Michelle designed and sewed,) classmate Lisa Luder, current head fashion editor for Vogue, announces that she finds them glamerous and fun. Christy is left in the dust as everyone congratulates Romy and Michelle on their great designs. Then, in a fairly ironic parallel of Michelle's dream, Sandy Frenk arrives and turns out to actually have become a handsome millionaire. He escorts Michelle and Romy to his helicopter so that they can fly off together. (On they way they encounter Romy's former football crush; he is drunk, unsuccessful and fat. Romy sends him up to his hotel room with the promise of sex, but abandons him, saying that now he can "see what it feels like to wait."
Back in L.A., Romy and Michelle use money loaned to them by Sandy to open their own clothing design store. Finally they have resolved their inner conflict about who they are. They resolve to live happy lives doing exactly what they love, with whom they love.