The rural town of Titfield. At Titfield station, the train is ready to go, but to the irritation of Mr Blakeworth, the town clerk, the driver won't leave without squire Chesterford, whose car has been delayed behind Hawkins' tractor. Chesterford finally arrives and the train leaves four minutes late. The stationmaster puts up a poster announcing the closure of the line and its replacement by a bus service run by Pearce and Crump Ltd.
At the Pearce and Crump depot, Pearce shows Crump their brand new bus. Relating the news of the closure, he muses that Titfield will one day be renamed Pearcetown.
Chesterford and Blakeworth visit Sam Weech, the vicar, to tell him the bad news. All are crestfallen, until it occurs to them that despite recent nationalisation, there is nothing to prevent a new company from running a railway. But they are at a loss as to how to raise the money to buy the line, until Chesterford suggests the wealthy Mr Valentine.
They find Valentine in the local pub, where he is cheerfully buying rounds of drinks. Valentine suggests Dan Taylor, a retired engineman, as a driver. However Weech, a railway enthusiast, takes exception. Valentine suggests they both drive. However he is reluctant to put up the money, until Chesterford tells him the train will have a bar open as early as he likes. Delighted, Valentine agrees to fund it, to the horror of Pearce and Crump.
The Ministry of Transport holds a public enquiry to determine whether the sale should go ahead. Pearce and Crump claim the railway will be unsafe, but the official decides to allow the group the railway a one month trial, to become permanent if it passes an official inspection.
The next morning the train manages to get off on time, despite Dan's oversleeping. But they are forced to stop by Pearce and Crump, whose cart filled with bricks is stuck across the line. Weech shunts the cart out of the way, but Pearce and Crump call on Hawkins, who parks his tractor on the line. Hawkins and Weech battle it out, and in the end Hawkins' tractor is overturned.
Next day, Hawkins exacts revenge, shooting holes in the water tower. Borrowing buckets and other receptacles from a nearby farm, the passengers join together to fetch water from the river, just in time to prevent the engine overheating.
The railway goes from strength to strength, and soon Pearce and Crump lose all their passengers, with the exception of Blakeworth, who has lost his patience with the train's erratic timekeeping. Crump approaches Chesterford to offer a deal, but is refused.
On the eve of the inspection, Hawkins, at the behest of Pearce and Crump, uses his tractor to drag the engine off the track. Blakeworth, who was trying to stop him, is found by a policeman and arrested.
Weech discovers Blakeworth is at the police station. He gets him released and the charges dropped, in return for his help in getting the Titfield Thunderbolt, a vintage engine, from the museum. Meanwhile, Dan and Valentine have stolen a locomotive from a nearby depot. Drunken, they crash it into a tree, and are arrested. In the meantime, the villagers borrow Dan's home, an old train carriage.
Later, stunned at the sight of the train, Pearce and Crump crash into the police van carrying Dan and Valentine.
With a makeshift rope connecting the train and carriage, and Holly, a bishop friend of Weech's acting as fireman, the Thunderbolt is prepared. The inspector arrives, and the train pulls away, but is forced to stop for the police and their prisoners - including Pearce and Crump. When the inspector tests the emergency stop, the rope breaks, and the engine pulls away up the hill. However, with the help of local villagers, and a linking chain borrowed from Hawkins' tractor, the carriage and engine are recoupled. Time is lost but the inspector none the wiser.
The train arrives at its destination, and the inspector delivers his report. Thanks to the delays, the train has just managed to keep within the maximum average speed permitted on a light railway. Crew, passengers and other train drivers celebrate.
