An ensemble of children open the show ("Miracle") as an amateur ballroom dancer, Mrs. Wormwood, gives birth to Matilda. The self-obsessed new mother is more concerned with missing a dance competition than her newborn daughter, and her similarly shallow used-car salesman husband, Mr. Wormwood, rejects the child when he realizes she is a girl. Time passes and a now 5 year-old bibliophilic and extradorinary Matilda must constantly endure the verbal abuse from her unenlightened family, including her older less-than average brother, Michael. Matilda retaliates by adding hydrogen peroxide to her father's hair oil, giving him a brand-new, bright green hairdo ("Naughty").
Finding solace at the local library, Matilda distracts herself by telling Mrs. Phelps, the librarian, a story about a renowned acrobat and escapologist, who yearned for a child but could not have one ("Acrobat Story I"). The following day is Matilda's first day of school ("School Song"), where her kind and compassionate teacher, Miss Honey, immediately recognizes Matilda's exceptional intelligence and recommends she be placed in the top class with the older children ("Pathetic"). Unfortunately, the cruel, child-loathing headmistress, Miss Trunchbull, refuses Miss Honey's suggestion and gives her a reminder on the necessity of following the rules ("The Hammer").
Back home, Mr. Wormwood, who just lost a group sale to rich Russians, takes out his failing car sales frustration by destroying one of Matilda's library books. Again, Matilda retaliates by adding glue to his hat ("Naughty Reprise (Superglue)"). Back at school, Matilda discovers the cruel Miss Trunchbull punishes disobedient children by locking them in a small cupboard filled with sharp objects called Chokey ("Chokey Chant"), and also witnesses her swing a girl by her pigtails and throw her across a field. The caring Miss Honey pays a visit to the Wormwood's house to share her recommendation that Matilda be placed in an advanced class. Mrs. Wormwood, busy at rehearsal with her dance partner, Rudolpho, could not care less and mocks both her daughter and Miss. Honey ("Loud"). A forlorn Miss Honey feels powerless to help Matilda ("This Little Girl").
In the library, Matilda continues the story of the acrobat and escapologist for Mrs. Phelps. The acrobat's sister, a former hammer-thrower who enjoys frightening small children, arranged a performance that was cancelled upon news of the acrobat's pregnancy. The hammer-thrower is furious, and contractually binds them to perform or otherwise go to jail. ("Acrobat Story II").
Back at school, a boy in Matilda's class named Bruce Bogtrotter has been caught stealing a slice of Miss Trunchbull's personal cake. As punishment, Bruce is forced to eat the entire cake in front of everyone. The class show unanimous support for him ("Bruce"), and upon finishing Miss Trunchbull drags Bruce away to the Chokey.
Mr. Wormwood sings television's praises while denigrating the need for reading ("Telly") and Lavender, Matilda's schoolfriend, tells everyone she is going to put a newt in Miss Trunchbull's water jug. The children share their hopes for adulthood ("When I Grow Up") and Matilda vows to put a stop to Miss Trunchbull's cruelty.
In the library, Matilda continues the story of the acrobat and escapologist for Mrs. Phelps. The forced show goes well until a fatal injury at the very end where the acrobat dies in childbirth and her sister is invited to live with the newborn and the escapologist. The hammer-thrower is secretly detestable to the little girl, unbeknownst to the escapologist ("Acrobat Story III").
An ecstatic Mr. Wormwood returns home, having sold the cars to a group of Russians using dishonest methods - which disappoints Matilda. When she scolds him, he locks her in her bedroom where she finishes the story of the acrobat and escapologist. After years of cruelty from the hammer-thrower Aunt, the escapologist father discovers the truth. He vows to always be there for his daughter, and goes out to find the aunt, but is never seen again ("Acrobat Story IV - I'm Here").
The following day, Miss Trunchbull puts Miss Honey's students through a rigorous physical education class ("The Smell of Rebellion"). After Miss Trunchbull discovers the newt in her water jug, she begins to punish an innocent student. Matilda discovers she can move things with her mind and tips over the water jug, causing the newt to climb up Miss Trunchbull, scaring her off ("Quiet").
An astounded Miss Honey invites Matilda over for tea, where the two discover they both have less than ideal family lives. Miss Honey tells Matilda about her terrible aunt, who raised her as a child after her parents died. Miss Honey was legally contracted to pay her aunt back for every expense she procured as a child, and now lives in serenely in an old shed ("My House"). Matilda realizes that Miss Honey is the real-life child of the acrobat and the escapologist, and her aunt is Miss Trunchbull.
At school, Miss Trunchbull forces Lavender to the Chokey by making up a word she cannot spell during a spelling test. The children rebel by misspelling simple words, believing they can't all be sent to the Chokey. Unknown the students, Miss Trunchbull has built many Chokeys. Matilda uses her newfound powers to move the chalk on the chalkboard, terrifying Miss Trunchbull into believing the ghost of her dead brother is out to get her. The children celebrate her screaming exit and their freedom ("Revolting Children").
At the library Mrs. Phelps and Miss Honey reveal that after Miss Trunchbull ran away, Miss Honey's parents' will is discovered. Everything was bequeathed to Miss Honey after all, and she is also made the new headmistress. Matilda has lost her powers, and Miss Honey feels helpless that this special child is being reared in an unloving household. The Wormwoods arrive at the library in an anguished rush, telling Matilda they are fleeing to Spain after the Russian Mafia discovered they we sold broken cars. Miss Honey asks if Matilda can stay with her, but Sergei of the Russian Mafia arrives before a decision is made. Thoroughly impressed by Matilda, Sergei agrees to leave the Wormwoods alone as long as they never have to deal with Mr. Wormwood. ("Priyatna Paznakomitsa / This Little Girl Reprise"). It is agreed that Matilda will now live with Miss Honey ("Bows / When I Grow Up Reprise").