After homeroom, Troy and Gabriella see each other and start to re-introduce themselves. As they talk near the sign-up sheet for the winter musical auditions, Sharpay sees them and assumes Gabriella wants to sign up. With Ryan's help, Sharpay determines that Gabriella is an "Einsteinette", and put an article of her previous academic achievements into Taylor's locker. During detention, Taylor approaches Gabriella and invites her to join the school's scholastic decathlon team. As a result of the detention, both Troy and Chad miss their basketball practice, much to the annoyance of Coach Bolton. During a confrontation between the coach and Ms. Darbus, it is made clear that neither of them has any real respect for the work that the other does. Troy eventually takes part in basketball practice, but he can't seem to stop thinking about Gabriella ("Get'cha Head in the Game").
Troy skips basketball practice during free period to go to the auditions, which Gabriella also attends. However, both are too shy to come forward, so they hide behind a janitorial rolling cart as Sharpay and Ryan perform their version of "What I've Been Looking For". When Gabriella finally decides to audition, Troy offers to sing with her, but Ms. Darbus says it is too late.
After a confrontation with Sharpay, Kelsi Nielsen, the composer of the musical, trips and drops her notes and piano music. Troy and Gabriella rush to help her, and she offers to let them hear how the song was supposed to sound. Troy and Gabriella then sing the slower version of the song, "What I've Been Looking For". Ms. Darbus hears them from behind the auditorium entrance and gives both Troy and Gabriella a callback. The next day, Sharpay sees the callback sheet and is furious. Once Chad and all the basketball players find out that Troy skipped basketball practice to audition for the musical, they all are shocked.
At lunch, everyone has learned that Troy is doing something highly out of basketball players' nature, and the students start confessing their secret passions and talents ("Stick to the Status Quo"), including basketball player Zeke Baylor's love of baking. Gabriella slips and accidentally spills her lunch all over Sharpay's shirt. Sharpay tells Ms. Darbus that Gabriella did it on purpose and tries to convince Ms. Darbus that Troy and Gabriella are trying to destroy the musical.
Troy asks Gabriella to meet him in his secret hideout, the balcony of a greenhouse. There, she reveals that singing with him at the party was like meeting a new friend at kindergarten; he felt like a best friend although she hardly knew him. Meanwhile, Zeke attempts to talk to Sharpay, who says that she would rather stick pins in her eyes than watch Zeke play basketball. He asks if that would be uncomfortable, and she snaps back, "Evaporate, tall person!"
Chad and Taylor decide that they need to devise a plan so that everything can go back to normal. The basketball team tricks Troy into saying that Gabriella isn't important while she watches them through a wi-fi link. Gabriella is hurt and confused about where she and Troy now stand ("When There Was Me and You"). Troy tries to talk to Gabriella as normal, but Gabriella tells him she does not want to do the musical anymore and that it was never really important to her.
After feeling guilty about ruining Troy and Gabriella's friendship, and noticing that they are no longer interested in the basketball game or the decathlon, Chad and Taylor decide to tell them the truth. Chad, Zeke, and Jason explain everything to Troy in the greenhouse and offer to support him at the callbacks. Taylor and the scholastic decathlon team tell Gabriella what they did, but Gabriella is still angry and hurt because of what Troy said, convinced that he meant it. That night, Troy goes to Gabriella's house, but she pretends to be busy with homework. Troy phones her from her backyard, telling her that the guy she met on vacation is much more like him than the guy that "said those stupid things". He climbs onto her balcony and starts singing the harmony of "Start of Something New" in attempt to persuade her to go to the callbacks with him. Gabriella then forgives him, and they start practicing the callback piece at school together with Kelsi.
Soon Sharpay and Ryan overhear Gabriella and Troy practicing, and feel intimidated by the competition. Together they convince Ms. Darbus to change the callbacks to the same time as the basketball championship and scholastic decathlon. Kelsi overhears their conversation with Mrs. Darbus, she and the others are devastated, but the scholastic decathlon and basketball teams and Kelsi work together to come up with a plan.
On the day itself, Taylor and Gabriella send a code by computer into the system to disrupt the basketball game by shutting down the scoreboard, and boil a hazardous chemical to stall the decathlon.
As Troy and Gabriella then rush to the theater, Sharpay and Ryan finish performing their song, "Bop to the Top", confident that they will get the part. Troy and Gabriella show up after Ms. Darbus has called their names twice, and she tells them again that they are too late. Many other students start streaming into the auditorium to support them and Ms. Darbus has no choice but to allow them to perform "Breaking Free." In the end, Ms. Darbus gives the parts to Troy and Gabriella. After winning both the scholastic decathlon and the basketball game, the entire school gathers in the gym to celebrate ("We're All in This Together").
After the celebrations, Sharpay finds Zeke alone in the gym and tells him that the cookies he made are the best things she has ever tasted. Zeke answers (quite suggestively) that he might even make her a crème brûlée.