Based on Marcel Pagnol's play, a moral schoolteacher becomes a chemist for a dishonest businessman.
Baron Philippe De La Tour (Reginald Mason) says goodnight to his mistress Coco (Myrna Loy) and goes home to his wife (Jobyna Howland). His son Charlemagne (Jackie Searl) says that his teacher Topaze is a Communist, hating the rich. At the Stegg Academy Auguste Topaze (Lionel Barrymore) teaches the morals of being honest and kind, saying a dishonest rich man has no friends and is not happy. Charlemagne gets a zero for disagreeing. When Madame La Tour insists, Dr. Stegg (Frank Reicher) fires Topaze for giving her son zeroes. Baron La Tour tells Coco not to hire Topaze. The scientist Dr. Bomb (Luis Alberni) will not support La Tour's swindle because of the microbes in his water. La Tour wants an idiot, and he offers Topaze a job as a chemist for his curative water at 4,000 francs a month. Topaze refuses charity, but La Tour assures him he will be making a profit from using his name on "Sparkling Topaze." Topaze makes a good formula, but La Tour sells the cheap water instead. Coco shows Topaze the advertisement at a restaurant. La Tour introduces Coco to his wife as Mme. Topaze. Coco walks out, and Topaze consoles her. She explains to him she is La Tour's lover.
Dr. Bomb calls Topaze "a scientific Judas" and demands 100,000 francs from La Tour, or he will expose the water; but La Tour blackmails him for past embezzlement. Bomb shouts, "Topaze is a thief." Topaze examines the Sparkling Topaze and finds microbes. He visualizes ads saying "Topaze is a thief." He realizes he was a fool and is ready to confess to the police; but he is given an award by government officials, who are business associates of La Tour. Topaze shaves and buys a new suit; he keeps men waiting to see him. Topaze tells La Tour he wants one-third of his business, having Bomb bring in papers on La Tour's relationship with Coco. Coco tells La Tour to vanish away, and Topaze gives him a contract to sign. At the Stegg Academy graduation Topaze speaks of what he learned in the world, that honesty is not always rewarded but villains are, because the world is upside down. Expected to award Charlemagne, his questions reveal he knows little. Topaze awards the prize to all the students, asking them to remember that dishonest gain is not worthwhile. In the final scene Topaze and Coco are going to a movie about sin.
In comic fashion this story contrasts the philosophy of ethics taught in school to corrupt practices in the business world in a modern parable of a business using advertising to promote a faulty product.