Olive lies to her best friend, Rhiannon Abernathy, about going on a date in order to get out of camping with Rhiannon’s hippie parents. Instead, she hangs around the house all weekend listening to the Natasha Bedingfield song “Pocketful of Sunshine” from a musical greeting card her grandmother sent her. The following Monday, Rhiannon presses Olive until she lies about losing her virginity to a college boy. Marianne Bryant, a prudish devout Christian, overhears her telling the lie and it soon spreads throughout the school. The school’s church group, run by Marianne, decides to “save” Olive from her supposed promiscuity. Olive confides the truth to her friend Brandon, who is bullied by other students for being gay. He asks her to pretend to have sex with him at a party so the other students will believe he is straight, to which she agrees.
After a fight with Rhiannon over her new reputation as a “dirty skank”, Olive decides to counteract the harassment by embracing her new image as the school tramp, wearing more provocative clothing and stitching a red “A” onto her clothing, inspired by Hester Prynne from Nathaniel Hawthorne’s 1850 novel The Scarlet Letter, which she was reading in her English class. Boys who have had no previous luck with girls beg Olive to increase their popularity by saying they have had sex with her, which she does in return for gift cards to various stores. Things get worse when Micah, Marianne’s boyfriend, contracts chlamydia from sleeping with Mrs. Griffith, the school guidance counselor, and blames Olive. As Mrs. Griffith’s husband, Mr. Griffith, is Olive’s favorite teacher, she accepts the blame to spare their marriage.
The church youth group, which now includes Rhiannon, begins harassing Olive in an attempt to get her to drop out of school. She is asked out on a date by Anson, Rhiannon’s crush, which ends badly when he tries to bribe Olive to actually have sex with him and not just pretend that she did.
Olive later reconnects with Todd, her childhood crush and the school mascot, who tells her he does not believe the rumors because she lied for him when he was not ready for his first kiss years ago. She decides to ask everyone she lied for to help her by telling everyone the truth, but nobody is willing to relinquish their newfound popularity. When Mrs. Griffith also refuses to tell the truth, Olive threatens to expose her affair, but Mrs. Griffith says no one would believe her. Out of spite, Olive immediately tells Mr. Griffith, who subsequently separates from his wife.
After talking with her open-minded mother, Olive comes up with a plan – she performs a song-and-dance number at a school pep rally to draw people’s attention and tells them to watch her webcast later that night, promising an online sex show with Todd when in reality, it is the webcast that has served as the narrative device for the film. As Olive is concluding her webcast, Todd comes by her house riding a lawn mower. She signs off by saying that she may lose her virginity to him sooner or later, but declares that “it is nobody’s goddamn business.” Olive texts Rhiannon and apologizes for lying to her. She goes outside to meet Todd and the two share a kiss before riding off on the lawn mower.