It's 1936 and the U.S. Government has created the Works Progress Administration, a program designed to find jobs for those put out of work due to the Great Depression. One of the pieces of the W.P.A. is the Federal Theater Project, run by Hallie Flanagan (CHERRY JONES). Not only must she keep the day to day operation in business, but she must also contend with members of Congress who are questioning the program's alleged communist content, as well as Hazel Huffman (JOAN CUSACK), one of her own clerks who has similar misgivings about the involved politics.
One of Hazel's allies is Tommy Crickshaw (BILL MURRAY), an aging and boozing ventriloquist who's been assigned the task of teaching vaudeville to two less than talented newcomers, Sid (JACK BLACK) and Larry (KYLE GASS). Although he similarly bemoans the spread of communism, he's more interested in Hazel than in the Reds.
Another project is "The Cradle Will Rock," written by tortured composer Marc Blitzstein (HANK AZARIA) and directed by Orson Welles (ANGUS MACFADEN). While the famed actor and director enjoys bickering with his producer, John Houseman (CARY ELWES), he encounters labor problems with his union actors, headed by John Adair (JAMEY SHERIDAN), as well as his inexperienced leading lady, Olive Stanton (EMILY WATSON), who just days early was sleeping in a movie house and singing for food. Meanwhile, bit actor Aldo Silvano (JOHN TURTURRO) is simply trying to keep food on the table for his growing family.
One of the unconditional supporters of the theater project is the somewhat flamboyant Countess La Grange (VANESSA REDGRAVE), who's married to industrialist Gray Mathers (PHILIP BAKER HALL). While he has to contend with her whimsical ways as well as possible union strikes, he seems more interested in Margherita Sarfatti (SUSAN SARANDON), an Italian art broker and fascist sympathizer.
A former mistress to Mussolini, she raises funds for the fascists through her art dealings. As such, she knows famed Mexican artist, Diego Rivera (RUBEN BLADES), who's been commissioned by Nelson Rockefeller (JOHN CUSACK), also one of her clients, to paint a massive mural in Rockefeller center.
As those two men clash over what constitutes art, Hallie, Welles and the others must contend with Congress attempting to shut down production of "The Cradle Will Rock" due to its pro-union and therefore presumably pro-Communist underpinnings.