Taking place in 19th century England, widower and undertaker 41-year-old Cedric Brown (Colin Firth) has seven children: 12-year-old Simon (Thomas Sangster), 10-year-old Tora (Eliza Bennett), 9-year-old Lily (Jennifer Rae Daykin), 8-year-old Eric (Raphael Coleman), 7-year-old Sebastian (Sam Honywood), 5-year-old Christianna (Holly Gibbs) and 1-y
ear-old Aggie (Hebe Barnes and Zinnia Barnes). He loves his children very much, but spends little time with them, unable to handle raising them all on his own. The children have had a series of seventeen nannies, whom they systematically drive out; it is a point of pride for them to get rid of each nanny as fast as possible. They also terrorize the cook, Mrs. Blatherwick (Imelda Staunton) but are cared for and loved by Evangeline (Kelly Macdonald), the young scullery maid.
Cedric attempts to hire another nanny from the agency that sent the past seventeen nannies, but the agency refuses him. Desperate to find another nanny, Cedric heeds the advice of a mysterious voice from the house, which says, "the person you need is Nanny McPhee." After a series of mysterious events, an unusual and hideous woman named Nanny McPhee (Emma Thompson) arrives at Brown home, introducing herself as a "government nanny". With discipline and magic, she transforms the family's lives. In the process, she herself transforms from ugly to beautiful. The children, led by Simon, attempt to play their tricks on her, but gradually start to respect her and ask her for advice. They change into responsible people, helping their hapless father in solving the family problems, and making Nanny McPhee less and less needed. (The storyline is, at this point, very similar to Mary Poppins).
The family is financially supported by the late Mrs. Brown's Aunt, Lady Adelaide Stitch (Angela Lansbury). Though she is acting in concern for the well-being of her family, La
dy Adelaide is the source of major conflicts in the Browns' lives. In conjunction with her support for the family, Lady Adelaide demands custody over one of the children in order to ensure their continued education and proper upbringing in society. She initially chooses Christianna to go with her, but as the children - and Cedric himself - loathe the idea of parting with one of the siblings, Simon offers up Evangeline in Chrissy's place. Adelaide agrees, assuming that she is one of the daughters, and adopts Evangeline as her own. Both Evangeline's desire to be properly educated, as well as Adelaide's latest contractual stipulation, are satisfied by the act of trickery.
Lady Adelaide also demands that Cedric remarry within the month, threatening to cut off the family's allowance if he fails to do so. Desperate to keep his family together and prevent losing his house, Cedric turns to the vulgar Mrs. Selma Quickly, local widow of three husbands with garish taste in clothing. Based on the image of stepmothers in fairy tales, the children assume that stepmothers are all cruel, and attempt to sabotage a visit from Mrs. Quickly, however their tricks backfire and Mrs. Quickly initially assumes that Mr. Brown is keener on her than he actually is. During the tea party, Mr. Brown's endeavours to protect Mrs. Quickly from his children result in him throwing himself on top of her, pulling her to the floor and burying his face in her bosom. Nevertheless, Mrs. Quickly - ignorant of the children's pranks - is happy with all this provided as she gets a proposal. However, when his proposal is ruined by more pranks, she leaves angrily and refuses see him again. After the children are explained the truth of their father's situation, they agree to the marriage, and appease Mrs. Quickly by confessing they were to blame for the disturbance of her visit, and lure her with promises of Aunt Adelaide's wealth.
However, on the day of the wedding, the children discover that Mrs. Quickly is as conniving and cruel as they had feared, when she breaks Aggie's rattle - the last thing they had to remind them of their mother. When everyone is gathered for the wedding, the children disturb the ceremony by pretending a swarm of bees has been attracted to Quickly's flowered hat. Things quickly get out of hand, resulting in a food fight. Cedric realizes that both he and his children truly dislike his wife-to-be, and joins in the disruption of the ceremony. Angered, Mrs. Quickly puts an end to the wedding and storms off.
Just as it seems that Adelaide's marriage deadline has passed without result, Lily asks Evangeline whether she loves Cedric. She first denies it, explaining that that would be inappropriate because of her station as maidservant, but then firmly admits she does. Cedric realizes that he is in love with Evangeline as well, and the two are married.
Nanny McPhee taps her magic staff one last time, and provides a perfect backdrop for Cedric's marriage to Evangeline by creating a beautiful snowstorm, referencing Mrs. Blatherwick's declarations that "it'll be snowing in August before this family is straightened out!" Aunt Adelaide's demand is satisfied, and all of the family's problems are solved.
Her duties fulfilled with the final act of fixing Aggie's rattle, Nanny McPhee leaves the Brown household, keeping to her statement that "when you need me, but do not want me, then I must stay. When you want me, but no longer need me, then I have to go". As she is walking away in the end, it leads to forthcoming sequels.
