Fletcher Reede is a crooked lawyer and divorced father living in Los Angeles. He loves spending time with his young son Max; they often play a game where Fletcher makes his hand into "the Claw" and pretends to chase Max with it. Fletcher, though, has a habit of giving precedence to his career, breaking promises to Max and his ex-wife Audrey, and then lying about the reasons. Fletcher's compulsive lying has also built him a reputation as a successful defense lawyer in California as he climbs the ranks in the firm he works for. Ultimately, Fletcher misses his son's birthday party because he has sex with his boss Miranda, in the hopes of making partner. Max makes a birthday wish that his father would be unable to tell a lie for an entire day � a wish that immediately becomes true.

Fletcher soon discovers, through a series of embarrassing incidents � such as when he tells Miranda that he has "had better" sex than he just did with her � that he is unable to lie, mislead, or even withhold a true answer. These incidents are inconvenient, as he is fighting a divorce case in court which, should he win, could be a boost to his career. His client is Samantha Cole, a gold-digger. His main witness, Kenneth Falk, who Samantha has been cheating with, is eager to commit perjury to win, but Fletcher discovers that he cannot even ask a question if he knows the answer will be a lie; during the case he even objects to himself when he tries to lie to get the desired information. Meanwhile, Audrey is planning to move to Boston with her new boyfriend Jerry, and decides that Max will go with them to protect him from the disappointment Fletcher causes him when he breaks his promises.

Fletcher tries desperately to delay the case, even beating himself up, but he cannot conceal that he is able to continue, so the judge insists that he does. Finally, when Fletcher is bound to lose the case, he discovers that Samantha had lied about her age and therefore had signed the prenuptial agreement as a minor, rendering the contract void. This entitles Samantha to 50% of her husband, Richard Cole's marital assets, equal to $11.395 million, allowing Fletcher to win the case truthfully. Samantha then insists on contesting custody of their children for an extra $10,000 in child support payments from Richard. A visibly disheartened Fletcher watches as Samantha literally pulls the crying children out of Richard's arms. Appalled by the decision, Fletcher desperately tries to convince the judge to overturn the ruling, but he insults the judge's methods and is arrested for contempt of court. Fletcher calls Audrey to pay his bail, but she informs him that their plane leaves for Boston that night; his bail is eventually paid by his secretary, Greta.