The book starts with Greg's Mom buying him a blank blue diary when he says "Remember how I said that if some jerk caught me carrying a book with "diary" on the cover, they were gonna get the wrong idea? Well, that's exactly what happened today.", Rodrick tries to shout "Sissy!" and then punches him after writing about his swimming class.
The next day, Greg explains how bad his summer was with his brother Rodrick, who knows a secret that Greg is trying to keep after Rodrick puts him in the back of his van to find ever speed bump in the town, he drops Greg off to school, but Greg finds out he still has the Cheese Touch from last year (which is said on the book), he gets away with passing it on to a new kid, called Jeremy Pindle. Later, it is clear that Greg and Rodrick are always broke, so Mom starts a "Mom Bucks" program. Rodrick, at first, mismanages the money on his magazines, whilst Greg carefully manages the cash. Rodrick has an upcoming science project, and tells it that he would prefer to do it on 'Gravity', but clearly shows no effort, and asks his family members to do it for him. Rodrick later pretends to have the flu and after Mom and Dad leaves the house, he calls every friend he knows and has a party. Half a month later, Greg notices Rowley has play money identical to that of "Mom Bucks" and takes it home to put under his mattress. When Greg fails to do his history homework, he must borrow an assignment from Rodrick and pay him $20,000 in Mom Bucks. Unfortunately, Mom finds out about the stolen Mom Bucks when Rodrick tries to cash in the lot and she confiscates all of Greg’s Mom Bucks, including his real ones.
After Thanksgiving, Rodrick's party is uncovered by a photo and he is grounded. Greg is accused of being an 'accomplice' to Rodrick, and is banned from playing video games, even though he had been locked in the basement the whole time and had nothing to do with the party, much to Greg's dismay, and he is really mad, because Shelby the popular freshman, hot girl at the party) was there and Greg really thought she was hot. Rodrick then starts preparing for the talent show, despite his punishment (he wasn't allowed to leave the house). Dad then ends his punishment two weeks early because he hated listening to Rodrick's band, Löaded Diaper, play every day. After Greg hurts Rowley by putting a dumbell in a pillow that Rowley kicks during a sleepover, Greg must perform in the talent show with a first-grader, Scotty Douglas, who Rowley was partners with. They don't qualify, but Rodrick's band does. Rodrick, eager to continue to the talent show, hands in his Gravity science project earlier, but then is forced to do it again, since his project lacked several requirements. Rodrick tries to tell the teacher clearly about it, but then the teacher claims that it was a fairly easy experiment and did not make clear sense.
Dad tries to persuade to Rodrick to give up the show, but Rodrick insists on the show, so that he can send it to record label companies and bail out of school so he and Löded Diper can get noticed. Dad accepts this, half-heartedly. During the talent show, Rodrick has his band's performance taped so he can send it to the record companies, but afterwards the video is rendered useless after it is found that Mom (who was taping the video) had talked the whole time and everything she said was heard on the tape. Rodrick accuses Greg, and they get into a fight, and their parents send Rodrick down to his room and Greg up to his. Later, Rodrick spills the beans on what happened over the summer. Greg says that at Leisure Towers the retirement house where their grandfather lives, Rodrick takes Greg’s diary and makes a run for it, but trips on some board games. Greg grabs the diary, runs to the toilet and starts ripping off the pages to destroy it. Unfortunately, he finds out he’s in the ladies bathroom and is pulled out, being called a Peeping Tom. However, Greg ends up getting popular for what he did because the story gets extremely twisted from going to the women's bathroom in the retirement home to invading the girls' locker room in Crossland High School.
The story ends with Greg helping Rodrick with his science project for school called Do Plants Sneeze?, because he feels sorry for the video on the internet of his band, Löded Diper at the talent show which has been an worldwide internet hit due to his mom dancing in it.