Manfred, the ruler of Otranto, is impatiently waiting for the marriage between his son Conrad and the princess Isabella, the daughter of Frederic the Marquis of Vincenza. Rumors fly about Manfred’s impatience for the wedding, and the people believe that the marriage is in some way related to an ancient prophecy: “that the castle and lordship of Otranto should pass from the present family, whenever the real owner should be grown too large to inhabit it.” However, on the day of the wedding, Conrad is mysteriously crushed to death by a giant helmet falling from the sky. Realizing his only heir is dead and unable to produce more sons with his own wife, Hippolita, Manfred decides to continue his line by marrying his son’s fiancé Isabella.
Intending to divorce or kill Hippolita, Manfred approaches Isabella alone, proclaiming his intention to produce several sons with her. Despite her horrified protests, he grabs her, intending to rape her, but Isabella escapes, as Manfred is distracted first by the swaying feathers of the giant helmet, then by the moving portrait of his grandfather, then by his servants’ reports of the appearance of a giant leg in armor. With the help of Theodore, a peasant, Isabella escapes the castle through a secret underground passageway to seek sanctuary at the church of St. Nicholas, where she is under the protection of Father Jerome.
Matilda, Manfred’s daughter, is talking with her servant Bianca about the disappearance of Isabella when a servant informs them that Isabella has taken sanctuary. Meanwhile, Father Jerome is telling Hippolita and Manfred the same thing, with Jerome insinuating but not fully disclosing Manfred’s crimes. However, after Hippolita dismisses herself from the conversation, Father Jerome more frankly accuses Manfred of his crimes and urges him to repent and turn to the church. Manfred, however, repeatedly refuses, and tries to convince Jerome to grant him a divorce. Fearful of the consequences of saying no, Jerome plays along. However, much to Jerome’s dismay, his granting of the divorce inadvertently results in Manfred declaring a death sentence on Theodore, whom Jerome recognizes in that moment is his long-lost son.
Manfred promises Jerome his son’s life only in return for Isabella, and Jerome is caught in a moral quandary. However, before he can make a decision, they are interrupted by a host of knights who carry a giant sword and who seek in the name of Frederic (Isabella’s father, and the closest known relative of Alonso, the former lord of Otranto before Manfred’s grandfather took power), both Isabella and rulership of Otranto. Manfred ineptly attempts to win them over, but the knights discover that Isabella is missing and race against Manfred’s men to find her.
Having recognized Theodore’s resemblance to Otranto’s past hero and ruler Alfonso, Matilda frees Theodore from her father’s imprisonment, and they fall in love. In order to escape Manfred’s wrath and to search for adventure, Theodore decides to protect Isabella and finds her in a cave, where he defends her from a knight. Yet the knight, whom Theodore wounds, turns out to be Isabella’s father Frederic.
Theodore, Frederic, and Isabella return to the castle, where Frederic recovers and falls in love with Matilda. Frederic explains how he came to be in Otranto: after being captured by infidels in the Crusades, he had a vision warning him that his daughter was in danger. The vision led him to a forest in Joppa, where he met a hermit who led him to a giant sword buried in the earth. Inscribed onto the sword is a prophecy stating that Isabella can be saved only by Alfonso’s blood where the giant sabre’s matching helmet is found.
After Frederic finishes his story, Manfred arrives and suddenly notices the remarkable resemblance between Theodore and Alfonso. After questioning Theodore’s origins, Theodore reveals how he too came to be in Otranto: at a young age, he was kidnapped and enslaved by pirates, left only with a document from his mother proving that Jerome, the Count of Falconara, is his father. After being freed by Christians two years earlier, he searched unsuccessfully for his father and wandered into Otranto, where he worked as a farmhand.
The next day, Manfred tries to secure Isabella’s hand in marriage by leveraging Frederic’s attraction to Matilda. He proposes a double marriage, in which Frederic and Manfred will marry each other’s daughters. Frederic is greatly tempted both by the possibility of having Matilda and Otranto, and the only obstacle is securing Hippolita’s consent to divorce, which Manfred easily obtains. However, when the ghost of the hermit haunts Frederic for forgetting his mission and for choosing lust over heavenly will, Frederic, though still sorely tempted, decides not to go through with the double marriage.
Manfred, enraged at Frederic’s change of heart, becomes even angrier when one of his spies informs him that Theodore is meeting a lady in Alfonso’s tomb. Believing that Isabella is having an affair with Theodore, Manfred sneaks into the tomb and stabs her, only to discover that it is Matilda, his daughter, whom he has fatally wounded. Despite her impending death, Matilda is deeply devoted to both her mother and father until the end.
Parts of the castle walls fall down behind Manfred, and a great image of Alfonso appears, declaring that Theodore is his true heir. Manfred, struck with sorrow and remorse, reveals that his grandfather had usurped the throne from Alfonso, and Jerome reveals that Theodore is Alfonso’s grandson. After Manfred abdicates, he and Hippolita retire to become a monk and a nun in nearby convents. Frederic renounces his claim to Otranto and offers Isabella’s hand in marriage to Theodore.