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The movie begins in New Jersey in 1982, where we see a young girl named Gracie Hart at the playground, reading a book. A little boy is being picked on, so Gracie goes over and beats up the bully. She then tells the picked-upon boy that she likes him, but he says he doesn't need a girl to defend him and he doesn't like her. Gracie also beats up this boy. This sets the stage for Gracie's relationship with men.
Jump forward 18 years later, and Gracie is now a tomboyish FBI agent, played by Sandra Bullock. When we first see her, she is in the middle of a sting operation. A gunfight ensues, and Gracie gets one of her men shot by leaving her post to assist the main baddie, who is choking on a peanut. Another FBI agent, Benjamin Bratt, saves the day. Gracie gets a major chew-out from her boss, played by Ernie Hudson (from "Ghostbusters"). He assigns Gracie to a desk job for not following orders.
As it turns out, the team is tracking a serial killer known only as the "Citizen." He/she has sent the feds numerous clues about where they will strike next. Gracie studies the latest note, and finds it different from the rest, but more importantly, discovers that the "Citizen" will strike at the Miss United States beauty pageant held in San Antonio. Since Bratt did such a spectacular job in the earlier sting, he gets to assign his own team to go to San Antonio, and get an agent into the pageant. After much looking, he finally decides Gracie should go. She is against the whole idea, saying it's degrading to women, and all of the girls say that all they want is world peace. They meet with the head of the pageant, Candace Bergen (from TV's "Murphy Brown"), a former Miss United States herself, and the MC, William Shatner (from TV's "T.J. Hooker" and that other sci-fi show), as well as Bergen's incompetent, neer-do-well assistant, Frank. They agree to let Gracie into the pageant as Miss New Jersey (the true winner was caught in a porn film called "Arma-get-it-on"). Also, Gracie is guaranteed to make it into the final five.
However, since Gracie is very tomboyish, she needs to be prepped to look like a lady, and that is where Michael Caine comes in. He turns the rough, donut-eating Gracie into the debonair, carrot-eating Gracie in two days. Even Bratt, who was never attracted to her, is impressed.
Gracie is introduced to all of the contestants, most of all to Cheryl, Miss Rhode Island. Cheryl is one of those girls who comes from a deeply religious family, but deep down, loves to party.
To stay believable, Gracie has to forsake all fatty foods, and endure late-night crash-courses in beauty pageant etiquette. She also tussles with Bratt, who is obviously falling for Gracie.
One of the rounds in the pageant has each contestant do a special talent. Cheryl does baton-twirling. For Gracie, it's a trick with water glasses. At this event, she sees a man with a gun. When Bratt and his agents move too slowly, Gracie jumps from off the stage to contain the man. Turns out it was nothing. After this incident, Bergen threatens Gracie that if she messes up this pageant, she will kill her.
After some DNA testing, we learn that the "Citizen" is not man, but a woman, and it might be Cheryl. Bratt tells Gracie to make Cherly talk, like girl talk. Gracie's idea of girl talk is taking all of the contestants out for pizza and beer, where everyone gets wasted except Gracie. It is there that Cheryl reveals that she has committed a crime: she stole some red panties from a department store, since her mother said they were "the devil's panties". she was also attacked by her professor back in college, but didn't mention it. Gracie gets angry at this, and decides to teach Cheryl some self-defense moves, but Cheryl passes out instead, after too many shots and beer.
While cleaning Cheryl up in the bathroom, Gracie is told by Miss Texas and Miss California (I think) that Shatner is not retiring this year like he claimed; he's getting fired instead. Bergen is also getting fired, and Gracie immediately suspects that Bergen may be involved.
Gracie rushes back to the agents to tell them this, but her boss is there, which means bad news. However, the "Citizen" has been caught, so that means everyone must go home, case solved. Gracie insists that they stay, that she feels something bad will happen at the pageant, but her boss won't listen, even Bratt won't stand up for her. Gracie decides to stay at the pageant to protect the other girls, but her boss says only without her badge and gun. Gracie agrees, and stays. Everyone else, including Caine, leaves.
The next scene shows Bergen, alone at her office, pulling a beauty pageant crown out of her desk drawer, and remembering the day when she won. She is then startled by someone in the shadows, which turns out to be Frank, who, it is also revealed, is her son. It turns out they are the masterminds, and were using the "Citizen" as a decoy, but now since the "Citizen" has been caught, they must destroy the pageant now. An earlier scene revealed someone (presumbly Frank) putting a crown rigged with C-4 on a dummy, making the head explode. That's their plan.
As they are boarding their plane, Bratt and Caine talk about how bad they feel leaving Gracie behind. Caine complains how much he hated Bergen and her son, Frank. Bratt says he didn't know that was her son. Caine then dishes all the dirt he can about Bergen and Frank. Turns out Frank has a huge record, including DUI, assault with a deadly weapon, etc. They both decide to go back.
Gracie is doing very well in the finals, and actually looking like she cares. She sees Caine and Bratt come back, and is glad they came to watch. When it comes for Gracie's special talent, it is ruined, because all of the other girls accidently drank the water out of the glasses. Instead, Gracie decides to display some self-defense moves, using Bratt as her dummy. She really kicks his ass, and it wins over the crowd.
It is now down to the final five, with Gracie and Cheryl in the mix. Bergen takes the crown and tells Frank to go give it a polish. Gracie hears this and figures it out, but before she can tell anyone, she is whisked back on stage.
The runners-up are eliminated, and it comes down to Gracie and Cheryl. The winner is announced, and it is Cheryl. Gracie grabs her quickly, and tells her not to take the crown. However, Cheryl is so into the moment, she doesn't hear her. The crown is placed on her head, and Frank is waiting in the wings to set it off. Before he can do so, however, Bratt tackles him and they fight over the device that sets it off. Gracie is trying desperately to get to Cheryl, but she is being restrained by security. Finally, she kicks both their asses and even punches Miss Texas in the nose. Gracie rips the crown off of Cheryl's head, causing Cheryl to cry immensely. The device is knocked to the floor, where it is picked up by Bergen, who is about to set it off. Gracie throws the crown high in the air, where it explodes, destroying only a huge prop.
Bergen and her son are arrested, and we discover that Bergen only did this because she was getting fired. Gracie tosses her into a patrol car, and walks over to Bratt, who congratulates her on a job well done. They finally kiss.
The next day, as Gracie and Bratt are leaving, Caine tells them to come inside, there's a surprise for Gracie. It's all of the other contestants, giving her a round of applause, and Cheryl, as the new Miss United States, crowning Gracie as Miss Congeniality. Gracie gives a speech about how much she respects these girls and how hard they work, and finally declares that she really does want world peace.
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