The three main characters each provide their judgments upon Queeg in the following scene:

• Keith views Queeg's speech somewhat sympathetically, although states that the captain "turned yellow the first time we got into action."
• Maryk also interprets Queeg's words as "the closest he could come to an apology," excuses Queeg for being "a tired man," and faults them for not backing up their combat-fatigued commander.
• With only an amateur understanding of psychiatry, Lieutenant Keefer preaches dissension against Queeg, and labels his erratic behavior as a "paranoia case." He helps to eventually undermine the Captain and encourage a mutiny aboard ship ("Has it ever occurred to you that our captain might be unbalanced?...Captain Queeg has every symptom of acute paranoia. It's just a question of time before he goes over the line").

Keefer steadily instills doubt in the crew's (and Maryk's) confidence in Queeg by questioning the captain's mental instability:

Look at the man. He's a Freudian delight. He crawls with clues. His fixation on the little rolling balls. The chattering in second-hand phrases and slogans. His inability to look you in the eye, the constant migraine headaches.

At first, the well-meaning Maryk defends Queeg (and swears on a Bible that he will hear nothing more of Queeg's mental illness), but secretly reads a book on Mental Disorders, and begins keeping a medical journal or log-record of Queeg's "mentally-disturbed" behavior ("Morale couldn't be lower. The crew is resentful. The officers just going through the motions of carrying out orders.")

Three more incidents build a strong case against Queeg's mental incapacity:

• during the showing of a Hopalong Cassidy western film on deck, Queeg has a temper tantrum with the 'disrespectful' projectionist, and immediately suspends movies on board the ship for 30 days
• during a training drill, Queeg threatens to dock any crew member not wearing proper battle gear "three-days' liberty," but when humiliated by the crew's deceptive antics to wear the right attire, announces that the innocent will be punished with the guilty: "There will be no liberty for any crew member for three months!"
• a full-scale investigation of the men is called to determine who pilfered a quart of frozen strawberries from the wardroom pantry refrigerator - that was reserved for the Caine's officers. Drawing from his experience in a previous pilfered cheese investigation, Queeg orders a vain "detective work" dragnet (including strip-searches of crew members) for a duplicate (non-existent) key to the refrigerator lock, and refuses to believe the real explanation that the messboys ate the strawberries (related to him by Ensign Harding but then covered up)

Queeg's over-reactive, idiosyncratic behavior causes Maryk to bend to Keefer's assessment that the Captain's impaired behavior is paranoid, and that he should apply Article 184 of Naval Regulations to remove Queeg from command:

This is over the line. Queeg is a paranoid or there's no such thing as paranoia....Is it [the strawberry incident] worth turning a ship upside down? Would anyone but a crazy man do it? Steve, are you familiar with Article 184 of Navy Regulations?...'It is conceivable that most unusual and extraordinary circumstances may arise in which the relief from duty of a commanding officer by a subordinate becomes necessary either by placing him under arrest or on the sick list. Such actions shall never be taken without the approval of the Navy Department except when it is impracticable because of the delay involved.' If I were you, Steve, I'd memorize it.

Keefer convinces Maryk and Willie to join him and report Queeg's strange behavior to Admiral William Halsey on his impressive air-craft carrier fleetship New Jersey, but then chickens out on deck at the last moment. Keefer argues that Maryk's log records will be interpreted as meaningless on board Halsey's ship:

We've been kidding ourselves. This isn't the Caine. This is the real Navy, with real officers, not Queegs! The Caine's a freak, a floating mistake...They'll never believe our story....we won't be able to make it stick. Unfortunately, everything Queeg did, everything you've got in your log there can be interpreted as an attempt to enforce discipline...If we go through with this, we're in trouble...I can see six sides to every risk and twelve reasons why I shouldn't take it...Behind this smiling, brilliant, eloquent exterior, I've got a yellow streak fifteen miles wide. I'm too smart to be brave.

The problems onboard the Caine reach a climax during maneuvers in a fierce typhoon. The beleagured and incompetent, combat-fatigued Captain panics and refuses to change course - thereby endangering the crew, himself and the overmatched ship. Under these circumstances, Queeg is relieved of his command and authority by Lt. Maryk, backed up by officer-of-the-deck Keith, who cites Section 184 of the Navy Regulations permitting a subordinate officer to relieve a commanding officer under extraordinary circumstances.

Captain, I'm sorry, but you're a sick man. I'm relieving you as captain of this ship under Article 184.

Before the memorable courtroom sequences of the court-martial trial of Maryk and Keith for mutiny (wrongfully assuming command), Maryk's brilliant but reluctantly-unwilling military defense lawyer Lt. Barney Greenwald (Jose Ferrer) lacks hopeful opinions of the trial's outcome. Eight other lawyers had already turned down the offer to represent them:

I'm going to be frank with you two. I've read the preliminary investigation very carefully and I think that what you've done stinks...I don't want to upset you too much, but at the moment, you have an excellent chance of being hanged.

He cites evidence that although three other ships sank, 194 other ships remained afloat during the typhoon without the removal of their captains. In his actions, Maryk was either "a fool or a mutineer. There's no third possibility."

To distort his own complicity in antagonistic, anti-authoritarian actions against the Captain, Keefer slyly and ambiguously disavows any responsibility for the blame before the trial and during his self-serving testimony at the trial. Keefer avoids being charged with inciting to mutiny (an offense mentioned in Article 186 of the Navy Regulations) by perjuring himself. Maryk's own testimony proves that he is unqualified to distinguish between "paranoid" and "paranoia" and make psychological judgments of Queeg's behavior and mental disorder. The evidence appears to favor the Captain, until the nervous and inept behavior of Captain is itself questioned.

• Does he have symptoms of a paranoid personality?
• Is he unbalanced, suspicious, incompetent, neurotic, and obsessively perfectionist?

In a memorable performance on the witness stand (similar to Bogart's performance in The Treasure of the Sierra Madre (1948)), Queeg gradually traps himself and loses all credibility during his own testimony. He slowly disintegrates, becomes incoherent and paranoid, and discredits himself under tough cross-examination questioning from Greenwald about each incident. Queeg foolishly and hysterically defends and justifies his actions in the strawberries incident, and condemns the disloyalty of his officers. While he babbles on and on, and absent-mindedly rolls the two steel balls in the palm of his hand, he cracks under the pressure:

They were all disloyal. I tried to run the ship properly by the book, but they fought me at every turn. If the crew wanted to walk around with their shirttails hanging out, that's all right, let them! Take the towline - defective equipment, no more, no less. But they encouraged the crew to go around, scoffing at me and spreading wild rumors about steaming in circles and then 'Old Yellowstain.' I was to blame for Lieutenant Maryk's incompetence and poor seamanship. Lieutenant Maryk was the perfect officer, but not Captain Queeg. Ah, but the strawberries! That's, that's where I had them. They laughed at me and made jokes, but I proved beyond the shadow of a doubt, and with, with geometric logic, that, that a duplicate key to the wardroom icebox did exist. And I would have produced that key if they hadn't pulled the Caine out of action. I, I know now they were only trying to protect some fellow officer. (He pauses - looks at all the questioning faces that stare back at him, and realizes that he has been ranting and raving.) Naturally, I can only cover these things from memory...

The courtroom scene ends without a judge's verdict - it isn't necessary.

In the conclusion of the film, the officers (minus Queeg) celebrate the successful defense and acquittal. Maryk is cleared of the charges of mutiny. He questions Keefer's attendance at the party: "I didn't think you'd have the guts to come around." Keefer replies: "I didn't have the guts not to."

A drunken, sarcastic, and sneering Greenwald who admits to a "guilty conscience," admits why he took the foul case: "I defended you, Steve, because I found the wrong man was on trial - so I torpedoed Queeg for you. I had to torpedo him. And I feel sick about it." He praises Queeg's earlier service record in the 30s, while berating the others (and himself) in a prosecutorial tone for showing uncaring ignorance of those who had defended their country:

Greenwald: When I was studying law, and Mr. Keefer here was writing his stories, and you, Willie, were tearing up the playing fields of dear old Princeton, who was standing guard over this fat, dumb, happy country of ours, eh? Not us. Oh, no! We knew you couldn't make any money in the service. So who did the dirty work for us? Queeg did! And a lot of other guys, tough, sharp guys who didn't crack up like Queeg.
Keith: But no matter what, Captain Queeg endangered the ship and the lives of the men.
Greenwald: He didn't endanger anybody's life! You did! All of you! You're a fine bunch of officers.

He criticizes Maryk and the other officers for not preserving military integrity and supporting Queeg as captain when he needed their loyalty and sympathy after the dye-marking incident:

Greenwald: Tell me, Steve, after the Yellowstain business, Queeg came to you guys for help and you turned him down, didn't you?
Maryk: Yes, we did.
Greenwald: You didn't approve of his conduct as an officer. He wasn't worthy of your loyalty. So you turned on him. You ragged him. You made up songs about him. If you'd given Queeg the loyalty he needed, do you suppose the whole issue would have come up in the typhoon?

Greenwald's major scorn and recrimination, however, is reserved for the deceitful, manipulative and cowardly Keefer ("the man who should have stood trial") - "the Caine's favorite author, the Shakespeare whose testimony nearly sunk us all." He confronts the understated Keefer as the evil influence and "real author" behind the entire mutiny:

You ought to read his testimony. He never even heard of Captain Queeg!...Queeg was sick. He couldn't help himself. But you - you're real healthy. Only you didn't have one-tenth the guts that he had...I want to drink a toast to you, Mr. Keefer. From the beginning, you hated the Navy, and then you thought up this whole idea, and you managed to keep your skirts nice and starched and clean, even in the court martial. Steve Maryk will always be remembered as a mutineer. But you! You'll publish your novel, you'll make a million bucks, you'll marry a big movie star, and, for the rest of your life, you'll live with your conscience, if you have any. Now, here's to the real author of the Caine mutiny. Here's to you, Mr. Keefer.

And after the mock toast, he throws his champagne [another yellow-stained marker] in Keefer's face, and then offers an outspoken challenge:

If you wanna do anything about it, I'll be outside. I'm a lot drunker than you are - so it'll be a fair fight.

The accused Keefer is left standing alone in the room with a rendered verdict of guilty.

The film ends with Keith, now reassigned to a new ship (to his surprise) under the command of Captain DeVriess. Keith's new bride May Wynn (May Wynn, originally Donna Lee Hickey), whom he earlier dated during shore leaves, kisses him at dockside and watches as her husband's ship departs for the Pacific theater of the war, and steams away under San Francisco's Golden Gate Bridge.