Miley Stewart (Miley Cyrus) has become overwhelmed with her alter-ego, Hannah Montana's, popularity. After filming her music video ("Best of Both Worlds"), Oswald (Peter Gunn), a sneaky undercover journalist for celeb magazine BomChic, overhears that Miley's keeping a secret and becomes determined to find out what it is.
However, she gets into trouble when she ends up in a catfight with Tyra Banks over a pair of shoes at a department store, wanting to buy them as a birthday present for best friend Lilly. This results in her missing saying goodbye to brother Jackson (Jason Earles) who departs for college. When Oswald secretly follows her limo to the party, she is forced to attend as Hannah, resulting in the guests turning their attention to her instead of Lilly (Emily Osment), especially when Hannah is accompanied by Steve Rushton in her performance of ("Let's Get Crazy"). 
Hannah and Tyra's fight is splashed across front pages across the media and Miley's father, Robby (Billy Ray Cyrus) is left furious about the fact her popstar life could threaten to take over for good. That same day, they leave for the World Music Awards in New York on a private jet but when the plane lands, Miley instead finds herself in Crowley Corners, Tennessee, her hometown. It soon emerges Robby had the plane travel to Tennessee instead because of it being her grandmother, Ruby's (Margo Martindale) birthday and that he wants her to reveal the life she could have had. When the dismayed Miley asks if her career as Hannah Montana is over, Robby says to ask again in two weeks' time.
In Tennessee, Robby and Miley have their own relationships. Robby has a love interest, Lorelei, played by Melora Hardin, and Miley develops a deep connection with a childhood friend Travis Brody (Lucas Till). Robby's relationship with Lorelei is awkward, going from his breaking Ruby's collection of plates featuring celebrities in trying to impress Lorelei, to discovering she is also a mechanic.
That night, Miley looks at a picture of her mom and her when she is young, missing her mother. Meanwhile, Miley is chastened after Ruby mentions that she seems to want to be Hannah Montana more than she wants to be with her family. Oswald, meanwhile, follows Miley to her hometown. Later, she tries to write her song, but when Travis ignores it, she is unable to write. Meanwhile, there is a firm battle developing with the residents of Crowley Corners and a team of developers who are planning to destroy the meadows and building a shopping mall on the site. At a barn party that night, several singers contribute to the charity to save Crowley Corners, singing ("Back to Tennessee"), and ("Crazier"), (Taylor Swift). Miley then sings ("Hoedown Throwdown") until the mall developers arrive. Travis and Miley dance, as do Robby and Lorelei, and the pair share their first kiss. Travis suggests that Hannah Montana should appear to play a special gig, seeing that Miley knows her (Miley had lied to Travis that she saved Hannah's life in a surfing accident).
Miley spends time with her best friend Lilly (Emily Osment), who has arrived along with Hannah Montana's band and crew, and the two make up. She has a rough time adjusting to farm life while trying to be herself and Hannah, and Oswald takes a picture of her and Lilly. When Miley sees Travis, talking to him as Hannah, she encourages him to ask Miley out; he decides to take her advice. She promises to go, but has been invited to dinner with the Mayor by Lorelei (Lilly had been disguised as Hannah at the time). Miley struggles to switch between the two venues as both forms. Eventually she lets her guard down and is caught by Travis holding her Hannah wig. He immediately rejects Miley and she is devastated. Matters are further complicated when Robby has to break up with Lorelei, needing to take care of his daughter.
Miley writes her own song, ("Butterfly Fly Away"), which she and Robby Ray sing together to cheer her up. Miley build a chicken coop, and Travis sees it. Hearing a Hannah Montana song ("Rock Star"), he decides to go to the concert to support Miley.
The day of the final concert arrives and while performing, Hannah suddenly stops midsong, seeing Travis shows up. She feels guilty, removes the wig and reveals that she is Miley and decides to stop being Hannah, being unable to lead her double life anymore. She then sings her own song she created- ("The Climb")- but afterward the crowd pleads with her to carry on being Hannah, promising her they won't tell anyone her secret. Suddenly, Oswald appears and takes a picture on his mobile phone but after encouragement not to by his twin daughters, he changes his mind and quits his job. The concert ("You'll Always Find Your Way Back Home") is a success and Miley departs Tennessee again after kissing Travis, her faith in living a double life fully restored, and Robby and Lorelei renew their relationship.