Hedwig and the Angry Inch is a rock musical about a fictional rock and roll band fronted by a genderqueer East German singer, Hedwig Robinson. The story draws on Mitchell's life as the son of a U.S. Army Major General who once commanded the U.S. sector of occupied West Berlin. The character of Hedwig was inspired by a German divorced U.S. Army wife who was a Mitchell family babysitter and moonlighted as a prostitute at her Junction City, Kansas, trailer park home. The music is steeped in the androgynous 1970s glam rock style of David Bowie (who co-produced the Los Angeles production of the show), as well as the work of John Lennon and early punk performers Lou Reed and Iggy Pop.
The concept of the stage production is that the audience is watching genderqueer rockstar Hedwig Robinson's musical act as she follows rockstar Tommy Gnosis's (much more successful) tour around the country. Occasionally Hedwig opens a door onstage to listen to Gnosis's concert, which is playing in an adjoining venue. Gnosis is recovering from an incident that nearly ruined his career, having crashed his car into a school bus while high and receiving oral sex from none other than Hedwig herself. Capitalizing on her notoriety from the incident, Hedwig determines to tell the audience her story ("Tear Me Down").
She is aided and hindered by her assistant, back-up singer and husband, Yitzhak. A Jewish drag queen from Zagreb, Yitzhak has an unhealthy, codependent relationship with Hedwig. She verbally abuses him throughout the evening, and it becomes clear that she is threatened by his natural talent, which eclipses her own. She describes how she agreed to marry him only after extracting a promise from him to never do drag again, and he bitterly resents her treatment of him. (To further the musical's theme of blurred gender lines, Yitzhak is played by a female actress.)
Hedwig tells her life story, which began when she was Hansel Schmidt, a "slip of a girlyboy" growing up in East Berlin. Raised by an emotionally distant single mother after his father, an American soldier, abandoned the family, Hansel takes solace in his love of western rock music. He becomes fascinated with a story called "The Origin of Love," based on Aristophanes' speech in Plato's Symposium. It explains that three sexes of human beings once existed: "children of the sun" (man and man attached), "children of the earth" (woman and woman attached), and "children of the moon" (man and woman attached). Each were once round, two-headed, four-armed, and four-legged beings. Angry gods split these early humans in two, leaving the separated people with a lifelong yearning for their other half. Hansel is determined to search for his other half, but is convinced he will have to travel to the West to do so.
This becomes possible when, in his 20s, he meets Luther Robinson, an American soldier ("Sugar Daddy") who convinces him to begin dressing in drag. Luther falls in love with Hansel and the two decide to marry. This plan will allow Hansel to leave communist East Germany for the capitalist West. However, in order to be married, the couple must consist of a man and a woman. Hansel's mother, Hedwig, gives Hansel her name and passport and finds a doctor to perform a sex change. However, the operation is botched, and Hansel's surgically constructed vagina heals closed, leaving Hansel – now Hedwig – with a dysfunctional one-inch mound of flesh between her legs, "with a scar running down it like a sideways grimace on an eyeless face" ("Angry Inch").
Hedwig goes to live in Junction City, Kansas, as Luther's wife. On their first wedding anniversary, Luther leaves Hedwig for a man. That same day, it is announced that the Berlin Wall has fallen and Germany will reunite, meaning Hedwig's sacrifice was for nothing. Hedwig recovers from the separation by creating a more glamorous, feminine identity for herself ("Wig in a Box") and forming a rock band she calls The Angry Inch.
Hedwig befriends the brother of a child she babysits, shy and misunderstood Christian teenager Tommy Speck, who is fascinated by a song she writes with him in mind ("Wicked Little Town"). They collaborate on songs, and begin a relationship. Their songs are a success, and Hedwig gives him the stage name "Tommy Gnosis." Hedwig believes that Tommy is her soulmate and that she cannot be whole without him, but he is disgusted when he discovers that she is not biologically female and abandons her ("The Long Grift"). He goes on to become a wildly successful rock star with the songs Hedwig wrote alone and with him. The "internationally ignored" Hedwig and her band the Angry Inch are forced to support themselves by playing coffee bars and dives.
Hedwig grows more erratic and unstable as the evening progresses, until she finally breaks down, stripping off her wig, dress, and make-up, forcing Yitzahk to step forward and sing ("Hedwig's Lament"/"Exquisite Corpse"). At the height of her breakdown, she seems to transform into Tommy Gnosis, who both begs for and offers forgiveness in a reprise of the song she wrote for him ("Wicked Little Town (Reprise)"). Hedwig, out of drag, finds acceptance within herself, giving her wig to Yitzhak. At peace, Hedwig departs the stage as Yitzhak takes over her final song, dressed fabulously in drag ("Midnight Radio").