The book opens with an unnamed narrator’s description of a party held one Christmas Eve in England at which some friends have gathered to share ghost stories. One of the partygoers, Douglas, says that he knows a particularly sinister ghost story about a governess’s time spent taking care of a wealthy Londoner’s niece and nephew at a country estate haunted by two ghosts. He has access to the governess’s written account of her experience, and he offers to go get it and read it to the partygoers. The partygoers excitedly accept his offer, and the following night he reads to them the governess’s story, at which point the narration shifts to the governess’s point of view.
The governess worries that she may have made the wrong decision when she accepted the position, but when she sees the estate for the first time, she falls quickly in love with its beautifully put together exterior. Her first meeting with Flora, the beautiful and well-mannered young girl for whom she would be responsible at Bly, calms her worries still more. She also takes comfort in the welcoming demeanor of Mrs. Grose, the housekeeper at Bly who eventually becomes the governess’s trusted confidante.
The night she arrived at Bly, the governess received a letter announcing that Miles, the boy for whom she was responsible, was expelled from school. The letter does not specify the circumstances of his expulsion. The governess has not yet met Miles at this point—he hadn’t yet come home from school—so her relationship with him begins on a mysterious and sour note, and this colors her relationship with the boy throughout her time at Bly. When she meets him, the governess decides he’s as well-behaved as his impressively good sister.
One evening while out for a walk, the governess spots a strange man looking down at her from one of the home’s towers. She doesn’t mention the meeting to anyone, but when she sees the man again one afternoon staring at her through the window from outside the room she’s in, she tells Mrs. Grose about these sightings. Mrs. Grose tells the governess that the man she’s seen is Peter Quint, the estate’s now deceased former valet.
The governess eventually encounters a second stranger. This time she is by the estate’s lake with Flora when she sees a somber-looking woman dressed in black staring from a distance at her and Flora. The governess tries to find some hint in Flora’s face that she too sees the woman, and she is certain that the girl is aware of the woman but intentionally keeps this hidden from the governess. The governess describes this woman to Mrs. Grose. Mrs. Grose tells the governess she’s seen Miss Jessel, the previous governess who also had died.
The governess believes Miss Jessel and Quint pose a threat to the children, so she asks Mrs. Grose to tell her about the time at Bly when they were alive. Mrs. Grose tells the governess that Quint had been “too free” with everyone at the estate. She says that he and Miss Jessel had a sexual relationship. She also says that Quint and Miles had maintained a dubious relationship—possibly a sexual one—and she tells the governess that the boy tried to lie about their time together. The governess is convinced that the children are secretly continuing their relationships with these two.
One day while Miles plays piano for the governess, Flora leaves the home unattended. The governess believes the two children conspired to make this possible, that Miles distracted her with his piano playing so that Flora could leave to meet Miss Jessel. She and Mrs. Grose head to the lake, and they find Flora there. The governess sees Miss Jessel across the lake, and she yells to Mrs. Grose and Flora, convinced that the two also see her. They say they do not see her, and the governess accosts Flora, saying she sees Miss Jessel but refuses to admit that she does. This upsets Flora greatly, and she asks to be taken away from the governess. The girl falls ill, and the governess tells Mrs. Grose to take her away from Bly to her uncle’s place in London.
The book concludes with a dramatic final scene in which the governess and Miles are together alone in the home. The governess sees Quint outside through the window, and she grasps Miles in an effort to protect him from the man. She tells Miles she “has him” now, that he will never have to meet with Quint again. The boy’s heart stops.