A Lost Lady is set in the small railroad town of Sweet Water, on the Western plains. The finest family is that of the Forresters, and Mrs. Forrester is known far and wide as being an enchanting hostess. The leaders of the railroads often stop by the house and spend an evening there while passing through Sweet Water.
Niel Herbert, a young boy when the novel opens, goes to the Forrester estate in order to play in the marsh with his friends. While there, an older boy named Ivy Peters arrives. Ivy sees a woodpecker and shoots her out of a nearby tree. He then takes a blade and slits her eyes, watching as she flutters around helplessly before luckily finding her hole in the tree. Feeling sympathetic, Niel starts to climb the tree in order to put the bird out of its misery. Near the top he slips and falls to the ground, breaking his arm in the process and knocking himself out.
Ivy carries him to the Forrester residence where Niel is cared for by Mrs. Forrester. He immediately becomes enchanted by her nice house and her sweet smell. He does not see much of her after that until one day, several years later, she invites Niel and his uncle, Judge Pommeroy, to her house for dinner. At the meal Niel meets Ellinger, whom he later learns is Mrs. Forrester's lover, and Constance Ogden, a young girl who will marry Ellinger.
Niel starts to spend a lot of time with the Forresters that winter, often playing cards up to three evenings a week. One day a telegram arrives informing Captain Forrester that a small bank of which he is the president has declared bankruptcy. He and Judge Pommeroy leave to take care of the problem. During their absence, Ellinger arrives and Niel accidently spots Mrs. Forrester and Ellinger together in the house, a scene that destroys his image of her. When her husband returns, he announces that he has been financially wiped out. He soon suffers a stroke but survives, and Niel leaves to go to the Massachusetts Institute of Technology.
Two years later Niel is returning to the town when he encounters Ivy Peters on the train. Ivy tells him that he has drained the Forrester's marsh and turned it into wheat fields. Once he arrives home, Niel visits the Forresters. The Captain has become a fat old man who sits and watches a sun-dial all day long. Mrs. Forrester is as beautiful as always, but she greets Niel as if he were still a young boy.
Niel is put off by the fact that Ivy Peters is on the Forrester estate nearly every day, walking around as if he owns the place. He asks Mrs. Forrester why she allows Ivy to be so rude to her, and she tells him that he is a savvy business man who is investing money for so she can get away from the place.
A few weeks later Niel reads that Ellinger has married Constance Ogden and realizes that Mrs. Forrester will be upset. That night she arrives at his door and makes a long distance phone call to Ellinger. Niel is worried that the phone operator will listen in, and when Mrs. Forrester starts to get hysterical, he cuts the phone wire.
Soon thereafter the Captain suffers another stroke and Mrs. Forrester is soon unable to care for him by herself. The local women help her, eager for the chance to get into her house and gossip about it. Niel is offended by the way things are going and he chooses to postpone his education for a year in order to take care of the Forresters.
The Captain dies within a few months and Mrs. Forrester has the sun-dial place on his grave. Niel ends up staying in the town because his uncle has become sick and needs someone to take care of the law offices. Mrs. Forrester soon switches lawyers from the Judge to Ivy Peters, thereby severing all her old contacts. Ivy spends more time at her place than ever, and she soon get s reputation of chasing the younger men. Niel approaches her to ask her to stop, but she claims that she needs some company.
A few months later she invites Niel to a dinner party with some of the town's younger men. He reluctantly goes and watches as the uncouth boys eat and dine with her. She then tells them the story of how she met Captain Forrester as a young girl. She had been mountain climbing and fallen, landing in a pine tree with two broken legs. The Captain rescued her and he and his men carried her back to their camp.
Some months later Niel goes to say goodbye to her before returning to school. He watches from a distance as Ivy puts his arms around her and touches her breasts. Deeply dismayed, Niel leaves without talking to her. Some years later he meets one of his childhood friends. The other man informs Niel that Mrs. Forrester moved to California and from there made her way to Buenos Aires and married an Englishman. He mentions that she always had flowers placed on the Captain's grave each year. When Niel asks him if she is still alive, he says that she died three years earlier.