Act One

The Ensemble appears and sings a cheery song about what a great day it is on Avenue Q ("The Avenue Q Theme").

Recent college graduate, Princeton, portrayed by a puppet and equipped only with a Bachelor's Degree in English, is looking for two things: his life's purpose and an affordable apartment in New York City ("What Do You Do with a B.A. in English?"). On Avenue Q, he happens to find a building with a sign advertising an apartment for rent. Soon he meets a motley, but friendly, assortment of neighbors, including Kate Monster – a kindergarten teaching assistant and puppet, Brian – an unemployed comedian portrayed by a human, Brian's Japanese-American fiancée, Christmas Eve, and bickering roommates, Nicky – a slacker puppet – and Rod, who is a straight-laced investor and puppet with staunchly Republican views. The building superintendent is none other than former child TV star, Gary Coleman ("It Sucks to Be Me").

Princeton decides to rent the apartment and is immediately welcomed into the neighborhood. It is not long before he hints at a potential romance with Kate Monster. Elsewhere, we find Rod enjoying a book about Broadway musicals of the 1940s, when Nicky interrupts him. He begins relating an anecdote about a gay man who was hitting on him in the subway. Rod immediately becomes uncomfortable, but Nicky assures him that he'd have no trouble accepting Rod if he were a homosexual ("If You Were Gay").

Although Princeton was able to line up a job, he comes to find out that it has fallen through. Gary helps convince him that his sudden unemployment is an opportunity to find his life's purpose. Princeton reiterates his burning desire for finding a purpose ("Purpose"). Christmas Eve, Brian and Gary all appear to state what their purpose is.

Later, Princeton finds himself sitting out on the Avenue with Kate Monster. Kate shares her dream of creating a special school for monsters where they can be educated without fear of discrimination. Princeton then asks Kate if she is related to Trekkie Monster because they are both Monsters. Kate is offended and claims that that's a racist assumption. Princeton retorts that he finds her "monsters only" school racist. They agree that, not only are they both a little bit racist, but everyone else is, too ("Everyone's a Little Bit Racist").

Princeton is approached by the Bad Idea Bears: two adorable, snuggly bears who distract him from his quest to find his purpose. They successfully convince him to spend his rapidly dwindling funds on a case of beer.

Meanwhile, in her apartment, Kate receives a phone call from her unpleasant boss, Mrs. Butz. Butz informs her that she will have to take over the morning kindergarten class. Since Kate will be allowed to teach class on a subject of her choosing, she decides to teach them about something emotionally significant: friendship. Her hermit neighbor, Trekkie Monster, keeps interrupting her to say that friendship only exists online. Kate, however, firmly disagrees, but Trekkie finally convinces her to join a social networking site... and she becomes addicted ("My Social Life Is Online").

Rod approaches Christmas Eve for her advice on behalf of his "friend," who happens to be a gay investment banker. Christmas Eve advises Rod to tell this person to stay in the closet. Rod is very disheartened. Over at Kate's apartment, Princeton arrives. He brings her a mix tape, confirming his romantic interest, and asks her out on a date to the Around the Clock Café ("Mix Tape").

At the café, Brian performs a comedic opening number ("I'm Not Wearing Underwear Today"). The next performer up is Lucy, a seductive puppet who performs a sultry song ("Special"). Kate initially declines to drink because of work the next morning, but the Bad Idea Bears arrive and convince Princeton and Kate to enjoy Long Island Iced Teas. Lucy begins to flirt with Princeton until Kate intervenes.

Later that night, in Nicky and Rod's apartment, Rod dreams that he overhears a sleeping Nicky mumble that he is in love with Rod. Rod is overjoyed but then awakens to the realization that Nicky's love was only a dream. Kate, meanwhile, is in bed with Princeton ("Fantasies Come True"). Princeton gives Kate his lucky penny as a token of his commitment to her.

The next morning, we learn that Kate has overslept and missed her class. When Mrs. Butz calls to admonish her, Kate quits before she can be fired. Princeton asks Kate to accompany him, as his girlfriend, to Brian and Christmas Eve's wedding. She happily agrees.

Gary Coleman presides over the wedding. After the ceremony, Christmas Eve and Gary ask Nicky if Rod is gay; Nicky confirms that he believes that Rod is, in fact, a closeted homosexual. Rod overhears this and is furious, protesting that Nicky is wrong about him. Rod kicks Nicky out of their apartment.

The wedding makes Princeton anxious about the fast pace of his relationship with Kate. He is worried that their relationship is causing him to lose focus and that he is no longer trying to find his purpose. He abruptly breaks up with her. Kate is hurt, but salvages her pride ("There's a Fine, Fine Line").

Act Two

Two weeks later, Princeton is moping in his apartment. He is alone and unemployed, drowning in debt and no closer to finding his life's purpose. The Bad Idea Bears arrive and try to cheer him up. His neighbors then arrive to force Princeton to get up and out ("There Is Life outside Your Apartment"). Princeton meets up with Lucy and takes her back to his apartment. The duo encounter Kate in front of the building. She is crushed. Christmas Eve explains to Kate that love isn't easy ("The More You Ruv Someone"). Kate leaves a note for Princeton, inviting him to meet her at midnight on the viewing platform at the Empire State Building. Unfortunately, Lucy intercepts and destroys the note.

Since being kicked out by Rod, Nicky has been staying with various neighbors, but he has worn out his welcome with all of them. He asks Gary Coleman to let him sleep on his floor, but Gary refuses, explaining that everyone takes a measure of comfort from the misery of others ("Schadenfreude").

Kate waits for Princeton on the observation deck of the Empire State Building. On the street below, Lucy informs Princeton that she is no longer interested in him. Angry because she believes that Princeton has stood her up, Kate throws his lucky penny off of the observation deck. It plummets to the street below and strikes Lucy in the head, knocking her out cold.

We shift to the hospital, where Princeton and Kate anxiously await word on Lucy's condition. Lucy is still unconscious. Kate realizes that Lucy must have intercepted her note and that Princeton did not stand her up. Kate confesses that she has abandoned her dream of starting a school for monsters. Princeton apologizes for hurting Kate's feelings and tells her that he still hasn't found his purpose in life. Meanwhile, Nicky, now homeless and begging in the street, attempts to reconcile with Rod. Rod is too proud to accept his apology, but later admits to Christmas Eve that he misses Nicky. All of the characters express their longing to return to happier times ("I Wish I Could Go Back to College").

Nicky, still begging in the street, asks Princeton for a quarter. Princeton turns him down, telling him that he needs a moment for himself. Nicky tells him that he should start thinking about other people for a change. Inspired by this idea, Princeton decides to raise money for Kate's Monster school ("The Money Song"). The help of the entire neighborhood is enlisted in fundraising, including Trekkie Monster, who donates the millions of dollars that he has raised by selling all of his online friends' personal information to marketing companies. With a newfound motivation, Nicky decides to find a boyfriend for Rod.

The neighbors proudly present the new school to Kate, who is stunned and delighted. Christmas Eve and Brian announce that they are moving out of Avenue Q to a nicer neighborhood since Brian reveals that he has begun a new career as a consultant. Rod then announces that he is gay and invites Nicky to move back in with him. Nicky, however, reveals that he has found a boyfriend for Rod and introduces him to Ricky. Christmas Eve tells Kate that it was Princeton who spearheaded the fundraising drive. Princeton and Kate begin their reconciliation ("There's a Fine, Fine Line – Reprise").

A Newcomer arrives, expressing interest in renting the apartment being vacated by Brian and Christmas Eve. He is strikingly similar to Princeton ("B.A. in English – Reprise"). Upon seeing the newcomer, Princeton exclaims that his purpose in life might be writing a musical to educate people on the real world. The others reject this notion immediately, and the newcomer is insulted and storms off. Princeton laments that he may never find his purpose, but the neighbors reassure him that life has its ups and downs and is always full of surprises ("For Now").