Jabez Wilson comes to Sherlock Holmes and John Watson for help, claiming he has been wronged by a mysterious league of red-headed men. The titular Red-Headed League claims to be an organization of red-headed men, founded by an eccentric red-headed millionaire who wished to provide for other red-headed men by offering them easy jobs for high pay. Wilson acquired one such job, copying out the encyclopedia for four pounds a week, for his employer, Duncan Ross. However, when Wilson turned up to the office today, there was a sign on the door announcing that the league had been disbanded. After having trouble tracking down Ross, Wilson learns that the landlord of the building knew Ross under a different name, William Morris.
Wilson was encouraged to apply by his assistant, a man named Vincent Spaulding. Sherlock enquires further about the assistant, and Wilson says that even though he is the best assistant he’s had, Spaulding is happy to work for half wages. This alerts Sherlock to something odd about the assistant, so he asks several follow-up questions. Wilson reveals that Spaulding is an intelligent young man with a passion for photography: he spends hours in Wilson’s cellar each day, developing his photographs. Wilson also reveals that Spaulding is of uncertain age, and has an acid splash on his forehead. All of these details are suspicious, but it is the acid marking that reveals to Holmes that Vincent Spaulding is in fact John Clay, one of the top criminals in London.
Holmes visits Wilson’s property to investigate further. The job with the Red-Headed League had required Wilson to leave the house for four hours every day, so Holmes suspects that the job was invented to simply get Wilson out of the way, leaving Clay to work on something illicit at the house. When Sherlock realizes that there is a bank on the same road as the property, he deduces that Clay is digging a tunnel from the cellar to the bank, in order to rob it. The disbanding of the league probably indicates that the tunnel is now finished, because Wilson no longer needs to leave the house. Holmes rings the doorbell, and a “bright-looking, clean-shaven young fellow” answers. Holmes asks for directions and then promptly leaves. As he walks away, Holmes reveals that the man was in fact John Clay. Holmes explains to Watson that he asked for directions because he wanted the chance to look at Clay’s knees—he wanted to see if the trousers were worn down at the knee, as this would indicate that Clay had been doing a lot of digging.
Holmes concludes that the robbery will likely be tonight, because the tunnel is finished. As such, he gathers Watson, Detective Jones (the policeman assigned to the case), and Mr. Merryweather (the bank manager). The men wait in total darkness in the bank cellar for the criminals to emerge from the tunnel. Eventually, two men surface from the trapdoor. The first is the same man who answered the door to Holmes earlier that day, John Clay. Holmes manages to grab hold of Clay and detains him. Detective Jones fails to capture the second criminal, Archie, who is the same man who posed as Duncan Ross and William Morris. Holmes dryly assures Clay that his accomplice will soon be caught, as he has three further policemen stationed at the only other exit from the tunnel. Clay compliments Holmes on his thoroughness, and Holmes, in turn, compliments Clay on his ingenious plan. Merryweather claims that he doesn’t know how the bank can begin to repay Holmes, but Holmes asks for nothing more than his fair recompense. To conclude the story, Holmes explains step-by-step to Watson how he managed to solve the crime.