The action takes place at Bly, a country house, about the middle of the last century.
The narrator describes the circumstances surrounding the engagement of a young governess to a new post in a country house.
Moved by the persuasion of the young and handsome uncle of two orphan children, their guardian, she accepts the appointment and the conditions that she is not to worry him at any time.
SCENE 1: The Journey
As she travels to Bly, the governess wonders about what the future will hold.
SCENE 2: The Welcome
Miles and Flora excitedly await the governess' arrival, with Mrs Grose, the housekeeper. When she arrives, the governess is impressed by the charm of the children and warmly welcomed by Mrs Grose, who feels the children need someone young and cleverer than she as a companion.
SCENE 3: The Letter
The governess receives a letter from Miles' school, announcing his expulsion because of his bad influence on his fellows.
Mrs Grose assures her that she has never known him to be bad and they watch him playing gently with his sister, unable to believe any evil of him, so the governess decides to say nothing to him about the letter.
SCENE 4: The Tower
Walking in the grounds and reflecting on occasional feelings of something wrong about the house, the governess catches sight of a figure on the tower. At first she thinks it is her employer but then realises it is a stranger, and the figure vanishes.
SCENE 5: The Window
Miles and Flora play a nursery game and run off as the governess calls them. When she comes into the room she sees the strange figure at the window. It disappears and Mrs Grose identifies the apparition as Peter Quint, the master's valet, who had had an evil influence on everyone at Bly, including the children. He had seduced Miss Jessel, the previous governess, who had left to die, while Quint had been killed in an accident.
The governess is sure he has come for Miles, and Mrs Grose, though uncomprehending, declares her intention of standing by her.
SCENE 6: Lessons
Miles recites mnemonic lines of Latin grammar rules, including one new to the governess, involving four meanings of the word malo:
Malo: I would rather be Malo: in an apple tree Malo: than a naughty boy Malo: in adversity.
SCENE 7: The Lake
The governess and Flora are by the lake. As Flora sings a lullaby to her doll, Miss Jessel appears across the lake, and Flora turns her back in such a way as to convince the governess that she is aware of Miss Jessel. She feels powerless to protect the children against the malign influence of the ghosts.
SCENE 8: At Night
Miles is in the garden in his nightgown while Quint on the tower sings an enticing song about mysteries and enchantments to which he holds the key.
Miss Jessel calls from the lake to Flora, who appears at her window, and she and Quint try to lure the children. As the governess finds Miles and Mrs Grose appears behind Flora, the ghosts vanish.
Miles says to the governess, "You see, I am bad, aren't I?"
SCENE 1: Colloquy and Soliloquy
Miss Jessel accuses Quint of having seduced her and he answers that she has only herself to blame.
They agree that they need the children to share their damnation. They vanish and the governess bemoans that she has become lost in a labyrinth.
SCENE 2: The Bells
On the way to church the children improvise variations on a Magnificat, but the governess feels that in spirit they are with Quint and Miss Jessel. She rejects Mrs Grose's advice to write to their uncle, still resolved to spare him the worry and to fight on alone.
When Mrs Grose and Flora go into church Miles asks when he is to return to school, in such a way that the governess feels he knows the answer and has issued a challenge.
She feels unequal to the situation and decides to leave.
SCENE 3: Miss Jessel
The governess finds Miss Jessel seated at her desk and challenges her, but Miss Jessel, lost in her own woes, does not hear and then vanishes. The governess, resolving to stay, writes to the uncle, begging to see him and tell him what is happening.
SCENE 4: The Bedroom
She tells Miles she has written to his uncle and he comments that she is always watching. Quint's voice is heard summoning Miles and the governess tells Miles that if he wants her to help him, he must tell her how to help and save him.
The candle goes out and Miles says he blew it out.
SCENE 5: Quint
Miles follows Quint's instructions to take the letter.
SCENE 6: The Piano
Miles is practising, admired by the governess and Mrs Grose, while Flora plays at cat's cradle. Mrs Grose goes to watch her and Flora lulls her to sleep.
The governess becomes aware that Flora has slipped away while Miles was practising and Miles seems to celebrate his success in distracting them by a wild pianistic outburst.
SCENE 7: Flora
They find Flora sitting by the lake. Mrs Grose scolds her, but the governess asks where Miss Jessel is. She then sees her across the lake, but Mrs Grose can see nothing and Flora says she can see nothing, accusing the governess of being cruel and nasty.
Mrs Grose takes Flora back to the house and the governess feels that she has failed, losing her innocence and causing Flora to hate her.
SCENE 8: Miles
Mrs Grose is taking Flora away from Bly, now convinced that the governess is right, having heard terrible things from Flora in her sleep. Mrs Grose says that the letter was never sent, and must have been taken by Miles.
When the governess and Miles are left alone, she tries to get him to confide in her, but Quint's voice can be heard warning against her, Miles admits that he took the letter to see what she said about them, and Quint warns him not to betray their secrets.
The governess tries to get him to break the spell by naming Quint, but the effort is too much and he dies as he does so, leaving her to mourn: "What have we done between us?"