11-year-old Lyra and her dæmon, Pan, sneak into the Retiring Room at Jordan College so they can see what the Scholars do in there. She sees something that shocks her: the Master poisons wine intended for her beloved but terrifying uncle, Lord Asriel. When Lord Asriel himself appears, Lyra shows herself and warns him. He allows her to stay hidden and watch his presentation about something called Dust, which he's studying in the North. He shows a photograph of the northern lights and a city in the lights. She doesn't understand most of what he and the Scholars say, but they mention something called the panserbjørne and someone who, oddly, doesn't have a dæmon. In private later, the Master tells the Librarian that he was trying to protect Lyra from Lord Asriel and from her destiny, which is to unwittingly lead someone to their sacrifice.
Lyra spends her time running wild around Jordan College and Oxford with her best friend, Roger. Her idyll comes to an end with the Gobblers, who begin stealing poor children and shipping them north by luring them in with a glamorous woman named Mrs. Coulter. The narrator explains how she tricked a boy named Tony Makarios. Lyra is obsessed with the Gobblers but is terrified when they arrive in Oxford and steal a gyptian boy named Billy Costa and, possibly, Roger. That night, the Master invites her to dinner with him and with Mrs. Coulter. Mrs. Coulter is enchanting and Lyra is thrilled when she learns that she's going to go live with her. In the morning before she leaves, the Master gives Lyra a device called an alethiometer and tells her to keep it secret. Lyra is extremely confused.
Lyra is happy until one night that Mrs. Coulter throws a cocktail party. Mrs. Coulter loses her temper when Lyra insists on wearing a purse containing the alethiometer in the house, and Lyra and Pan realize that Mrs. Coulter’s dæmon—a golden monkey—is spying on them. At the party, Lyra realizes that the Gobblers are actually the General Oblation Board, the organization that Mrs. Coulter runs. She also overhears that the panserbjørne—armored bears—have imprisoned Lord Asriel. Horrified, Lyra runs away. Tony Costa (Billy’s older brother) and the gyptians rescue Lyra from kidnappers and his mother, Ma Costa, decides to take her to the fens with them for a gyptian meeting. They keep her hidden, as the police are looking for her.
At the meeting, the gyptian king, John Faa, says that they need to keep Lyra safe and announces a plan to rescue the kidnapped children. After the meeting, he and an old man, Farder Coram, speak to Lyra privately. She tells them everything she knows about the Gobblers, Mrs. Coulter, and Dust. She also shows them the alethiometer. Farder Coram tells her that the device tells the truth, and suggests that she might need to take it to Lord Asriel. They also tell Lyra that Lord Asriel is her father and Mrs. Coulter is her mother, while Ma Costa nursed Lyra as a baby. Three days later, the gyptians reconvene and begin to plan their expedition. John Faa refuses to take Lyra. Lyra attaches herself to Farder Coram and discovers that if she concentrates, she can read the alethiometer. One afternoon as she puzzles over it, an injured man returns from a spy mission and Lyra realizes that the alethiometer was trying to tell her about it. Because of this, John Faa decides to take Lyra.
Lyra has to hide as the gyptian men take her north, where they'll get a ship to Trollesund. Farder Coram allows her outside one evening after Lyra again can't interpret the alethiometer, but they quickly realize what it was trying to tell her when two "spy-flies" attack Pan. They capture one and ascertain that Mrs. Coulter sent them. Farder Coram seals the captured one in a tin. Lyra soon decides that she loves the sea. Pan loves it too and experiments with being a dolphin. This worries Lyra, but a sailor, Jerry, assures her that Pan will eventually settle in a form and that settling is a good thing—Lyra will know who she is when Pan settles.
In Trollesund, Farder Coram takes Lyra to visit Dr. Lanselius, the consul for the witches. Farder Coram saved a witch 40 years ago and she offered him a favor in return. Dr. Lanselius shares that there's a company in town that secretly imports children and takes them inland. He then asks Lyra about the alethiometer. While she's outside playing, Dr. Lanselius tells Farder Coram that Lyra is destined to save the world. He also suggests that the gyptians engage Iorek Byrnison, an armored bear. When they meet Iorek, Lyra finds him disturbing, as he doesn't have a dæmon. He agrees to work for the gyptians if they can get him his armor back. That night, Lyra gets up in the middle of the night to look at the Aurora and sees the city. The witch Serafina Pekkala's goose dæmon, Kaisa, interrupts her. He tells John Faa and Farder Coram how to get to Bolvanger, the terrifying place where the children go. He says it's connected to “Dust,” and mentions that Lord Asriel wants to use Dust to build a bridge between this world and other worlds, something that's politically complicated. They discuss the bears and their role in the conflict and Lyra insists that they need to help Iorek get his armor back.
In the morning, Lyra joins the gyptians in a cafe and a balloonist, Lee Scoresby, tips Lyra off to the fact that she needs to help Iorek get his armor now, before the townsfolk move it. She runs off but stops when she gets close to Iorek, too afraid to approach. Pan turns into a badger to try to pull her closer, which physically hurts, but he succeeds. Iorek explains that his armor is his soul and he needs it to be whole. Lyra tells him where his armor is and when Iorek emerges wearing it, he's formidable and seems whole. The gyptians, Iorek, and Lee Scoresby move out that afternoon. During a rest, the alethiometer tells Lyra about a "ghost" in a nearby village. John Faa agrees to let her check it out. In the village, Lyra discovers a horrifying sight: Tony Makarios, who has been severed from his dæmon. Lyra brings Tony back to the gyptians, but he dies a few hours later. Later that day, Iorek and Lyra discuss souls and Iorek shows her that bears can't be tricked. He suggests that they have a different way of knowing things, and it's the same kind of knowing that allows Lyra to read the alethiometer.
Not long after, Tartars ambush the gyptians and kidnap Lyra. They don't know who she is, so Lyra tells them her name is Lizzie. The Tartars take Lyra to what she assumes is Bolvanger. Sister Clara lets Lyra keep the alethiometer, and Lyra sneaks the spy-fly into her bag. The girls in Lyra's dormitory tell her that the doctors test them for Dust and, one by one, children disappear and never come back. They also mention that Mrs. Coulter is coming in two days. The next day, Lyra finds Roger. They pretend to ignore each other until lunchtime, when a girl says that she was with Tony Makarios when they took him. They told him he was going to undergo a "little cut." When Lyra finds Billy Costa later, she shares that the gyptians are coming, and Roger points out that kids can get into the ceiling to hide. A doctor announces that there will be a fire drill later.
The doctors test Lyra for Dust that afternoon. During the tests, the fire alarm goes off. They agree to let Lyra wear the furs she came with. Outside, Lyra incites a snowball fight so she, Billy, and Roger can look around secretly. Kaisa joins them and helps Lyra break into an outbuilding, where she finds the ghostly dæmons of severed children. He rescues the dæmons and Lyra rejoins the kids.
Mrs. Coulter arrives as the doctors are getting children back inside. One girl tells Lyra that Mrs. Coulter usually speaks to the doctors in the conference room. That night, Lyra crawls into the ceiling and listens in on Mrs. Coulter's conversation. She and the doctors discuss a new device for severing children and the escaped dæmons. When Mrs. Coulter leaves, the doctors discuss how cruel she is. Lyra involuntarily cries out and they discover her. They decide to perform intercision on her to keep her quiet, but just before they perform the procedure, Mrs. Coulter walks in and rescues Lyra. Mrs. Coulter pretends to be concerned about Lyra, comforts her, and tells her that Dust is bad. She wants the alethiometer, says that Lord Asriel shouldn't obtain it, and believes that it's in Lyra's pack. In the pack she discovers the spy-fly tin and the creature flies in her face. Lyra runs away, sets the kitchen on fire, and then leads kids away from Bolvanger. Iorek saves them from the Tartar guards and eventually, the kids reach the gyptians. There, Mrs. Coulter attempts to kidnap Lyra and Roger again, but Lee Scoresby rescues the children and takes them up in his balloon with Iorek. The witches pull them towards Svalbard.
As the balloon travels, Lee Scoresby and Serafina Pekkala discuss the ethics involved in destiny. Serafina says that they're all subject to destiny but, in order to feel in control, people must act like they have free will. Later, she and Lyra discuss what makes a bear susceptible to trickery. Serafina suggests that bears can be tricked when they act like humans. Not long after, cliff=ghasts (aggressive flying creatures) attack the balloon and Lyra falls out. Two bears find her and take her to Iofur Raknison's palace, which reeks and is covered in bird droppings. The alethiometer tells Lyra that Iorek is coming, and an imprisoned Scholar tells Lyra that if Iorek comes, Iofur will kill him. Lyra remembers that what Iofur wants most in the world is a dæmon. When a guard comes to deliver food, she uses this knowledge to get to Iofur and privately tells him that she's actually Iorek's dæmon, but he can win her for himself if he fights Iorek in single combat. Iofur agrees immediately. When Iorek arrives, Lyra tells him what she's done. Iorek is thrilled and impressed that Lyra could trick Iofur. He uses this to his advantage, tricking Iofur into losing in their fight. He begins to dismantle the palace and then agrees to take Lyra and Roger to Lord Asriel.
At his house, Lord Asriel is frantic when he sees Lyra, but relaxes when he sees Roger. That night, he tells Lyra that the Magisterium believes that Dust is proof of original sin, and Mrs. Coulter believes that separating a child from their dæmon will keep them from experiencing original sin. Lord Asriel doesn't think this takes things far enough; he wants to harness the energy created when a child is severed from their dæmon to cross into the other universe. He insists that he doesn't need the alethiometer, which confuses Lyra. Lyra wakes up in the middle of the night and learns that Lord Asriel took Roger to use in his experiment. Iorek carries her up the mountain in pursuit. They stop briefly so that Iorek can fight Mrs. Coulter's cronies, but Iorek ultimately has to let Lyra go on her own. At the top of the mountain, Lyra is unable to stop Lord Asriel as he attaches a wire to Roger's dæmon, which lights up the Aurora and rips open the sky to reveal a bridge to another universe, killing Roger in the process. Mrs. Coulter arrives and she and Lord Asriel kiss, but she refuses to go with him. Lord Asriel walks over the bridge. Alone, Lyra and Pan decide that Dust must actually be a good thing. They decide to cross the bridge too so they can find the source of Dust.