Lady Britomart has summoned her twenty-four-year-old son, Stephen, into the drawing room to discuss the family's finances for the first time in Stephen's life. It seems that both of his sisters are about to be married and both young women need extra money. While the younger, Sarah, is marrying into money, her fiancé, Charles Lomax, won't come into his millions until he is thirty-five years old. Barbara, the older sister, has abandoned all social pretension and has entered into a life of service in the Salvation Army, where she holds the rank of Major. Major Barbara has also attracted the attentions of a professor of Greek who has joined the Salvation Army in order to be near Major Barbara; unfortunately, he is "poor as a church mouse." Furthermore, it is time that Stephen think of marrying. Consequently, Lady Britomart has summoned her former husband, the immensely wealthy Andrew Undershaft, to come that evening to meet his family with the idea of obtaining additional monies from him for each of the children.
Lady Britomart then sends for her daughters and their fiancés, Charles Lomax and Professor Adolphus Cusins. When the daughters hear that their father is due to arrive at any minute, there is some alarm until Major Barbara announces that even her father has a soul and that his soul needs to be saved!
When Undershaft is announced, he is confused about the identities of everyone present until Cusins takes charge of matters and straightens things out. Undershaft then shows an immediate interest in Major Barbara's work for the Salvation Army, and he maintains that there are many similarities between the Salvation Army and his own munitions factory. After a lengthy discussion about the morals of both organizations, Major Barbara and her father make a bargain to visit each other's places; tomorrow, he will come to her shelter, and she, in turn, will visit his munitions factory. To settle the agreement, the family, along with the fiancés, decides to sing the rousing, militant Salvation Army tune "Onward Christian Soldiers."
The next day at the Salvation Army Shelter, two frequenters of the shelter are talking: Rummy Mitchens reveals to Snobby Price that she, Rummy, is merely pretending to be a worse sinner than she is because "the lasses" at the shelter like it better. Snobby then reveals that his act is also fraudulent, composed only of "made up stories." At this moment, young Jenny Hill, eighteen years old, arrives with Peter Shirley, a middle-aged man who desires to work but who cannot find a job. Suddenly, a tough young man named Bill Walker bursts into the shelter demanding the whereabouts of his girlfriend and accuses the Salvation Army of separating them. Then, without warning, Bill strikes Jenny in the jaw. Peter and Rummy try to separate the two, Snobby cowers cowardly in front of the bully, Rummy is knocked down, but Shirley stands his ground, and he challenges Walker to fight Todger Fairmile, a wrestler and a new convert to the Salvation Army. At this point, Major Barbara arrives and takes down Shirley's name; when she approaches Walker, however, he refuses to give her his name. Thus, she writes that he is the "man who struck Jenny Hill." After further conversation with Walker, and just as Major Barbara is on the verge of discovering that this ruffian also has a conscience, Cusins arrives with Andrew Undershaft, and Barbara tells Cusins to explain to her father how the shelter functions; then she goes into the shelter to attend to business.
In a discussion about the nature of religion and various virtues of truth, honor, and justice as contrasted with Undershaft's money and power, Cusins maintains that Undershaft will have to choose between Barbara's views and Undershaft's own unique views. Cusins' frankness and his understanding of religion appeal to Undershaft, as does Undershaft's ironic and paradoxical sense of life appeal to Cusins. When Cusins points out Major Barbara's devotion to the common person, Undershaft, who was born and grew up in poverty, points out that a love of poverty (and thus dirt, disease, and suffering) is unnatural. He asserts that he, Cusins, and Barbara are "above" the common people, and therefore they have an obligation to work together to elevate the common people. To do so and since he cannot "buy" Barbara, he must buy the Salvation Army.
Suddenly, at this moment, the members of the shelter return from one of their fund raising meetings. After the money is counted, and the sum is discovered to be short a few pence, Undershaft offers to make up the difference, but Major Barbara refuses, telling her father that he cannot "buy" his salvation. Bill Walker then returns after an encounter with Todger Fairmile, and he says that he wants to make a contribution as amends for hurting Jenny Hill, but again, Major Barbara asserts that the Salvation Army cannot be bought. At this point, Mrs. Baines, a Salvation Army commissioner, arrives and meets Undershaft. She enthusiastically describes the work of the Salvation Army (explaining that the Army feeds the poor enough so that they won't strike against the capitalists), and she ecstatically tells about an offer made to the Army by a man named Bodger, England's chief manufacturer of gin and beer. Bodger, she says, has offered 5,000 pounds to the Army if a donor, or donors, can be found to match this sum of money. Undershaft gladly writes out a check for this sum to the utter horror of Barbara and to the cynical amazement of Bill Walker, who asks Barbara, "What price salvation now?"
When Major Barbara protests that the Army cannot accept questionable or "tainted" money, she is barraged with a series of seductive arguments in favor of accepting the money. Cusins begins preparing for a parade to announce that the shelters will remain open, and Major Barbara quietly removes her badge of office and pins it on her father. As most of the others march out, Bill Walker becomes angered that the money which Barbara refused to take from him has now been stolen by Snobby Price. When Major Barbara offers to refund him his money, he in turn tells her that he will not be "bought." After Bill leaves, Peter Shirley and Barbara leave, consoling one another.
The next day, in Lady Britomart's drawing room, Cusins enters in a drunken state announcing that the Salvation Army's rally was a great success and that afterward he spent the night drinking Spanish burgundy with Undershaft. Shortly afterward, Undershaft arrives to settle money matters with Lady Britomart. He readily concedes to the demands which she makes for Barbara and Sarah, but he is adamant in his intention to leave the remainder of his fortune to a foundling, keeping the tradition of the Undershaft Munitions — that it, the factory must always be left to a foundling. Undershaft, however, does agree to help Stephen get started in a good job, and after a lengthy discussion with Lady Britomart, they decide that Stephen would be a good journalist because he knows how to use words that have no meaning. When the others return, Undershaft reminds Barbara that it is now time for her to keep her part of the bargain and visit the munitions factory. As they all leave, Barbara braces herself to see an eternal pit of fire and damnation — in short, a "factory of death."
Upon arriving at the munitions village, the Undershafts and fiancés are astonished to find that it is a model of absolute perfection — it is marred only by the fact that everyone lives there with the knowledge that they might "be blown to smithereens at any moment." In a discussion of the Undershaft tradition of having a foundling inherit the entire fortune and the factory, Cusins reveals that through a technicality (his mother — Cusins' mother — was his father's dead wife's sister, which makes Cusins illegitimate in England even though he was considered legitimate in Australia, where he was born), he is legally a foundling — but he does not know, really, if he wants the job or the inheritance. Cusins has no qualms about changing his name, but he is totally opposed to war and destruction. Undershaft then argues that cannons do not kill people — it is the persons who fire the cannons who kill others. He challenges Cusins to take the job and then use his money and power to change human nature — to create people of honesty and courage and moral conviction. Undershaft then leaves Cusins and Barbara together, and they both agree that they could use the munitions factory for the benefit of humanity and, furthermore, that Barbara, instead of converting people by promising them food and shelter, would now be able to convert people who are in no dire need of physical comforts. Thus, once again, after leaving the Salvation Army, Barbara "returns to her colors."