Unni is a little boy who lives in a village in Kerala. He belongs to the high caste of Nairs. His friends Raju, Ramu and Gopi, with whom he goes to school, belong to the lower caste known as untouchables. The film is about the relationship between the children and the discoveries they make together about the world they live in.

The children play together and make fun of their teachers. Their world consists of Seethamma teacher, whom they call the 'little elephant'; Madhavan, whom they call 'Iliyan', because of his always smiling face; the nosy headmaster, and the PE teacher whom they call 'moustache' and school’s odd job man Chathan.

The film is structured around a series of little incidents, which follow the children's journey through childhood as they try to make sense of the contradictory world they live in.

Unni's mother and grandmother, traditional Nair matriarchs, strongly disapprove of his friendship with low caste boys. Unni finds himself attracted to Sujatha, the carpenter's daughter. He sends her a love letter through a little boy, who gives it to the wrong girl. His teacher Seethamma finds out about his romance and threatens to tell his father.

Unni's father arrives after a long spell of working abroad. Unni cannot even remember him. The children are taught about the re productive system at the school. Unni wakes up in the middle of the night to hear his parents making love. This troubles him.

A magician arrives in the school. His mother and grandmother think it will be a bad influence on him and refuse to let him go. The smiling teacher, Madhavan, lets him in anyway. Fascinated by the magician, Unni and his friends try out his magic in the playground with other little children, with disastrous consequences. The small incidents in Unni's life build towards the climax of the film. Following a domestic quarrel, Unni's close friend Gopi's father kills his wife and commits suicide. He is compelled to discontinue his studies and go to Bombay. Unni's father goes abroad after finishing his holidays, just as Unni started to know him better.