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William Shakespeare (Joseph Fiennes) is a poor playwright for Philip Henslowe (Geoffrey Rush), owner of The Rose Theatre, in 1593 London. After learning that his love was cheating on him with his patron, Shakespeare burns his new comedy, Romeo and Ethel the Pirate's Daughter, rewriting it as the tragedy Romeo and Juliet. Suffering from writer's block, he is unable to complete the play, but begins auditions for Romeo. A young man named Thomas Kent is cast in the role after impressing Shakespeare with his performance and his love of Shakespeare's previous work. Kent is actually Viola de Lesseps (Gwyneth Paltrow), the daughter of a wealthy merchant who desires to act but, since women are banned from the stage, she must disguise herself.
After Shakespeare discovers his star's true identity, he and Viola begin a passionate secret affair. Inspired by her, Shakespeare writes quickly, and benefits from the advice of playwright and friendly rival Christopher 'Kit' Marlowe (Rupert Everett). Shakespeare and Viola know, however, that their romance is doomed. He is married, albeit long separated from his wife, while Viola's parents have arranged her betrothal to Lord Wessex (Colin Firth), an aristocrat who needs money. When Viola is summoned to the court of Queen Elizabeth I (Judi Dench), Shakespeare dons a woman's disguise to accompany her as her cousin. At court, he persuades Wessex to bet ￡50 that a play cannot capture the nature of true love. If Romeo and Juliet is a success, Shakespeare as playwright will win the money. The Queen, who enjoys Shakespeare's plays, agrees to witness the wager.
Edmund Tilney (Simon Callow), the Master of the Revels, the Queen's official in charge of the theatres, learns that there is a woman in the theatre company at The Rose playhouse, and orders the theatre closed for violating morality and the law. Left without a stage or lead actor, it seems that Romeo and Juliet must close before it even opens, until Richard Burbage (Martin Clunes), the owner of a competing theatre, the Curtain, offers his stage to Shakespeare. Shakespeare assumes the lead role of Romeo, with a boy actor (Daniel Brocklebank), playing Juliet. Viola learns that the play will be performed on her wedding day, and after the ceremony secretly travels to the theatre. Shortly before the play begins, the boy playing Juliet starts experiencing the voice change of puberty. Viola replaces him and plays Juliet to Shakespeare's Romeo. Their passionate portrayal of two lovers inspires the entire audience.
Tilney arrives at the theatre with Wessex, who has deduced his new bride's location. Tilney plans to arrest the audience and cast for indecency, but the Queen is in attendance. Although she recognizes Viola, the Queen does not unmask her, instead declaring that the role of Juliet is being performed by Thomas Kent. However, even a queen is powerless to end a lawful marriage, so she orders "Kent" to fetch Viola so that she may sail with Wessex to the Colony of Virginia. The Queen also states that Romeo and Juliet has accurately portrayed true love so Wessex must pay Shakespeare ￡50, the exact amount Shakespeare requires to buy a share in the Lord Chamberlain's Men. The Queen then directs "Kent" to tell Shakespeare to write something "a little more cheerful next time, for Twelfth Night".
Viola and Shakespeare part, resigned to their fates. The film closes as Shakespeare begins to write Twelfth Night, Or What You Will imagining his love washed ashore in a strange land after a shipwreck and musing, "For she will be my heroine for all time, and her name will be...Viola", a strong young woman castaway who disguises herself as a young man.