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This is a little story about Olive Penderghast and how she let everyone believe a lie she created.
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Olive Penderghast (Emma Stone) lies to her best friend Rhiannon (Alyson Michalka) about going on a date in order to get out of camping with Rhi's hippie parents. Instead, she hangs around the house all weekend. The following Monday, pressed by Rhiannon, Olive lies about losing her virginity to a college guy. Marianne (Amanda Bynes), a strictly religious girl at their school, overhears her telling the lie and soon it spreads like wildfire. The school's conservative church group run by Marianne decides Olive will be their next project.
Olive confides the truth to her friend Brandon (Dan Byrd), and he explains how others bully him because he's gay. Brandon later asks Olive to pretend to sleep with him so that he will be accepted by everyone. Brandon convinces Olive and they pretend to have sex at a party.
After having a fight with Rhiannon over Olive's new identity as a "dirty skank", Olive decides to counteract the harassment by embracing her new image as the school tramp. She begins to wear more provocative clothing and stitches a red 'A' (à la Hester Prynne in The Scarlet Letter) to everything she wears. Boys who usually have had no luck with girls in the past begin to give her money to say they have had sex with her in order to increase their own popularity, which in turn increases her reputation. Things get worse when Micah (Cam Gigandet), Marianne's 22-year-old boyfriend, contracts chlamydia from sleeping with Mrs. Griffith (Lisa Kudrow), the school counselor, and blames it all on Olive. Olive agrees to lie to cover up the affair so her favorite teacher, Mr. Griffith's (Thomas Haden Church) marriage would be spared. Marianne's religious clique (which Rhiannon also joined) begins harassing Olive in order to get her to leave school.
After an ill-fated date with a boy who wants to pay her to sleep with him, Olive reconnects with Todd (Penn Badgley), her old crush, who is also the school's mascot. Todd then tells her that he does not believe the rumors because he remembers when she lied for him when he wasn't ready for his first kiss years ago. Olive then begins to ask everyone she lied for to help her out by telling the truth, but since everyone is enjoying their new popularity they don't want the truth to get out.
After a friendly talk with her eccentric, open-minded mother (Patricia Clarkson), Olive comes up with a plan to get everything finally out in the open. She then does a song and dance number at a school pep rally to get people's attention to watch her via web cam, where she confesses what she has done. Later, she texts Rhiannon (Rhi), apologizing for lying. When she is finishing up her web cast, Todd comes by riding a lawnmower and tells her to come outside. She goes outside to meet him and the two are shown riding off on the lawnmower.