Nine-year-old Tommy Woodry lives in a tenement near the city. He has an over-active imagination, but his parents mostly ignore his fanciful, harmless lies. On a hot night, Tommy finds a cool spot to sleep on the fire escape next to his upstairs neighbours' window. He wakes up in the middle of the night and sees his female neighbour take money from a wallet. A man pretending to be asleep in the room rouses and fights her and her husband to retrieve the wallet, but she kills him. She had lured the man to the apartment and drugged his drink so they could steal his money. But the victim had seen through her. Tommy tells his parents but both don't believe him. They think the Kelersons are nice and that the police would know about the murder. Tommy also tells the police but they are skeptical. A detective takes Tommy home to his annoyed mother but finds nothing in the Kelerson home.
Angry Mrs. Woodry tries to make Tommy apologise to Jean Kelerson. Tommy refuses to say anything but Jean is suspicious that he knows about the murder. Later, Mrs. Woodry is summoned to nurse her sick sister. Tommy fears the Kelersons will get him while his father is at work on the night shift. He writes a runaway note with a P.S. that the Kelersons are murderers. His father intercepts him as he is about to run away and locks him in his room. Tommy escapes but Joe and Jean Kelerson are waiting. Joe finds the runaway note and rips off the P.S. part. He pretends they're going to the police station to sort out the accusations. Tommy runs away but they catch him and fool their cab driver and a police officer that they are taking their lying son home. To shut Tommy up, Joe beats him unconscious.
Meanwhile, Mr. Woodry discovers the runaway note. A police officer helps him go to Mrs. Woodry to look for his son. Tommy feigns unconsciousness as Joe seats him on the balcony rail next to the Kelerson apartment. Joe waits for Tommy to slip to his death. Horrified Jean tries to stop Joe. In the struggle, Tommy runs upstairs. The Kelersons chase Tommy across the rooftops to the abandoned building. Tommy sees his father on the street with the officer, but Mr. Woodry fails to hear Tommy's cry for help. Joe chases Tommy through the decrepit building which is starting to crumble around them. Tommy stumbles onto the dead body. Joe chases Tommy across a wooden beam that spans two sections of the building. Fearful of being caught, Tommy dislodges the beam and Joe plunges to his death.
The police are summoned to the building to rescue the boy. The Woodrys return home, guessing correctly that Tommy is in trouble. Tommy is reunited with his family. Knowing about Joe's death and the other man's body, the police and his parents finally believe Tommy, while he promises never to lie again.