The only daughter of wealthy Wall Street banker, Evelyn Murray, while with her aristocratic fiancé, Bert Van Vliet, runs down and injures newsboy Terry McGuire. To avoid an embarrassing outcome, Bert persuades her to flee the scene of the accident. Evelyn is conscience-stricken and informs her father; he is then forced to pay "hush money" to a garage attendant who has witnessed the accident.

Mrs. Penfield, better known as Penzie, is one of the inhabitants of a tenement neighborhood known as "the Custard Cup" because of its oval shape. Penzie is a widow who lost both her husband and son in the influenza epidemic of 1918 and 1919. She has found fulfillment by taking in three orphans. One of the Custard Cup's other residents is a counterfeiter, and when the police are too hot on his trail, he leaves a package with Penzie and sets a boat aflame when he tries to destroy some phony bills. When the gang is rounded up, Penzie -- who has been looking for one of her adopted children -- is found at the hideout and arrested.

The village of Sleepy Hollow is getting ready to greet the new schoolteacher, Ichabod Crane, who is coming from New York. Crane has already heard of the village's legendary ghost, a headless horseman who is said to be searching for the head that he lost in battle. The schoolteacher has barely arrived when he begins to pursue the beautiful young heiress Katrina Van Tassel, angering Abraham Van Brunt, who is courting her. Crane's harsh, small-minded approach to teaching also turns some of the villagers against him. Soon there many who would like to see him leave the village altogether.

The mother of a large family is abandoned by her children and faces consignment to the poorhouse. But one of her offspring, the one no one had faith in, returns to rescue her.

Orphaned as children, David and his sister are sent to live with separate families, where both are abused, and his sister dies. Filled with hostility, David now an adult, goes on a mission to seek vengeance on the adopting family.

Bruce Edwards returns to his hometown to take possession of his late father's estate, but Sam Willetts presents him with documentation proving that Mr. Edwards traded the estate for worthless swampland. Bruce takes a job in the village tavern and romances June Gordon, whose mother suspects Willetts of foul play. When Willets falsely accuses Bruce of theft, the young man escapes. Bruce later regains his father's estate by convincing Willets that the swampland is valuable for manufacturing purposes. Afterward, June and Bruce leave on their honeymoon.