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The Greasers, who tend to be less prosperous, obtain their nickname from the grease they use to slick back their hair. The Socs (pronounced soashes, an abbreviation of Socialites) tend to be wealthier. Although "The Outsiders" may seem to refer to the alienated Greasers, both groups are set back by economic, social, or creative limits.
In the beginning, Ponyboy, a Greaser, comes out of a movie house and is beat up by a group of Socs, but is saved by Darry, Sodapop and the gang.
At an open drive-in theater one night, Pony and his best buddy Johnny befriend two Soc girls, Sherri "Cherry" Valance and Marcia. While walking them home, their drunk boyfriends Bob Sheldon and Randy Adderson catch up to them, in their Mustang. The girls decide to return home with their boyfriends to avoid a fight. Ponyboy and Johnny fall asleep in a vacant lot, which results in Ponyboy coming home late. Darry becomes angry with and slaps him. Ponyboy runs out and finds Johnny at the vacant lot. They decide to run to the park to cool off.
While in a park, Bob and his Soc friends drive by, and begin to harass Ponyboy and Johnny. The Socs proceed to chase after the two boys and attempt to drown Ponyboy in a nearby fountain. Johnny takes out his switchblade and stabs Bob, killing him. Randy and the other socs run away in fright. The two boys seek help from Dallas "Dally" Winston, who gives them a loaded gun, money, and directions to an abandoned church in Windrixville to hide out in. Also, Dally tells them that he'll be down there when he thinks its safe. They take the 3:15 goods.
While hiding out in the church, they disguise their appearance, cutting off their long greasy hair. Ponyboy bleaches his with peroxide. While in hiding, the boys bond even more, and discover they both have a love for the beautiful things in life that are often not obvious. While going through the daily struggles that are overwhelming while living on the wrong side of town.
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Dally comes to visit them a week later, and brings Ponyboy and Johnny to the Dairy Queen to get some food. While there, he tells them that Cherry is willing to testify that her boyfriend Bob went looking for a fight and Ponyboy and Johnny fought back in self defense. After hearing this, Johnny tells Dallas that they want to go home and turn themselves in. Dally reacts angrily, feeling they went through all they had just to give up and they drive off. After a little while, Dally tells Johnny that he doesn't want to see Johnny get hardened in jail like he did. Ponyboy is somewhat shocked because Dallas never spoke of his past in that manner, but refrains from saying anything.
On the way back, they see that the church they had been staying in is on fire, most likely because of the cigarettes they had been smoking there. When they hear children trapped inside, Ponyboy and Johnny both run in to rescue the children. Ponyboy describes this as the first time Johnny did not have his usual scared, beaten-down look. Unfortunately, that does not last for long, because a burning roof beam falls on Johnny right before he was going to get out. He is knocked to the ground, his back broken. When Dally realizes what has happened, he immediately goes inside the church to rescue Johnny.
They are taken back to the hospital in town, Dally with minor injuries and Ponyboy with nothing wrong except for some bruises. However, Johnny is in critical condition. Ponyboy reconciles with his family, finally realizing that Darry does care about him, and the gang prepares for a big "rumble" (fight) with the Socs, which was sparked by the stabbing.
The day of the rumble, Randy, one of the other Socs who was trying to drown him that fateful night, confronts Ponyboy. He says that he doesn't want to fight in the rumble that nothing good would come of it. He said that he was sick of the fighting, and he had to tell someone. After this, both Randy and Ponyboy have different ideas of each other, and Randy ends up not attending the rumble.
Dally breaks out of the hospital to fight in the rumble. He is determined to fight for Johnny; and the Greasers are victorious. After the rumble, Dally and Ponyboy speed down the road in the car that Dallas borrowed from Buck Merril, his employer. When they get to the hospital, the doctor stops them, saying that Johnny is dying, but Dallas flips out his switchblade. The doctor replies that the switchblade does not frighten him, but the boys could see Johnny because they were his family, or as close a family as Johnny had. When they enter the hospital room, Dallas tells Johnny how they had beat the Socs in the rumble, but Johnny says that "fighting ain't no good", so Dally proceeds to tell Johnny that he is proud of him. This is what Johnny has been waiting to hear, his hero saying that he is proud of him. Johnny leans over to Ponyboy and faintly tells him to "stay gold". Then, Johnny dies. Dally storms out of the room in pain and heartbreak; Johnny was the only thing that Dally had ever loved.
Ponyboy returns home to tell the rest of the gang that Johnny had died. The gang is shocked, despite the fact that they knew that Johnny had been in bad condition. A few minutes later, Dallas calls from a pay phone, saying that he had robbed a convenience store. The gang meets Dallas at the vacant lot, where Dallas is surrounded by police. Dallas then pulls out an unloaded gun and commits suicide by police.
Ponyboy wonders for a split second why he had pulled it out if it was unloaded, but then he understood that Dallas had wanted to be dead; he had lost the only thing in the whole world that mattered to him. After the police kill Dallas, Ponyboy passes out due to shock, exhaustion, sickness, and a concussion from being kicked in the head during the rumble.
Ponyboy wakes up a few days later, unsure of what had happened. As it dawns on him, he begins to slip into denial, telling himself that it was he that killed Bob, not Johnny. Ponyboy is made to stay in bed for a week, and he gets several visitors. One of them is Randy, and Ponyboy gets irritated at him when he tries to say that Johnny had killed the Soc.
A court trial is scheduled to decide if the Curtis brothers will be allowed to stay together or if Soda and Ponyboy will have to be sent to a boys' home. The judge determines that Darry is a fit guardian, and the boys are allowed to stay together.
Later on, Darry and Ponyboy start fighting again, this time over an English composition that Ponyboy has to write in order not to fail English. (After Ponyboy had been sick, his grades had slipped from his usual A's and B's because he was too distracted to concentrate.) Sodapop runs out of the house because he can't stand the brothers fighting, but Ponyboy (who's on his school track team) and Darry catch him in a park.
Later on, while flipping through his copy of Gone With the Wind, he finds a letter Johnny wrote to him, explaining "staying gold" in the poem meant to never lose the appreciation for the things you find astounding when you're young. He tells Ponyboy that's the way to be, and urges him to tell Dally. Ponyboy knows it is too late to tell Dally, and he thinks of all of the other kids in the world that could be going through the same thing. Thoughts roll through his head of Johnny, Dallas, Bob, and all the others, of kids that would die young, of kids that would stay hoodlums forever, and he felt he needed to do something about it. So he started his English composition, which begins with the first sentence of the book.