The book chronicles the life of an artistic young boy named Jesse Aarons and the burdens and hardships customary to his home life, such as his duties on his family's farm and the constant agitations and annoyances of his four sisters. Jess has straw-colored hair and long legs. After having trained all summer to become his classroom's fastest runner, he is infuriated when this position is claimed by an intelligent and fast newcomer named Leslie Burke, whom he strongly dislikes. After following his experiences with classroom tormentors or rivals including Gary Fulcher, he anticipates the arrival of music class due to his strong infatuation for its beautiful young teacher, Miss Edmunds. However, it is during that one day that he discovers a fondness for the eccentric and ostracized Leslie, and they develop a friendship. While swinging together over a creek on a sunny day, they decide to design an imaginary sanctuary from the burdens and pains of everyday life. The pair reign as monarchs, calling it Terabithia and constructing a small refuge from these burdens in which their imaginary escapades take place.
At school, they also are challenged through the presence of an older bully named Janice Avery whom they immensely detest, and it is after she snatches a dessert from Jesse's younger sister May Belle's lunch that they forge a romantic letter under the guise of Willard Hughes, the object of Janice's infatuation, in conspiracy against her. After the plan's success exposes Janice to public mortification, the triumphant Jesse and Leslie indulge in their victory; however, after encountering a sobbing Janice in the girls' bathroom one day and learning of the abuse to which she is subjected, Leslie develops sympathy and a friendship with the misunderstood bully. In the meantime, her bond with Jesse also increases powerfully, and they continue to indulge in the pleasures derived from Terabithia, adopting a puppy named Prince Terrien, abbreviated to P.T.
After being invited to a trip to an art museum with Miss Edmunds, Jesse accepts the offer without properly notifying Leslie or his parents beforehand. After enjoying a day together, Jesse is horrified to return home and learn of Leslie's untimely and accidental death by drowning in the creek after the rope swing used to access Terabithia broke. A shocked Jesse, incapable of absorbing or accepting the impact or horror of Leslie's sudden death, is rendered in a state of denial of any grief or even of his friend's existence, and he is terrified at the concept of Leslie being sentenced to eternal damnation due to her doubts regarding religion. After he miserably accepts the inevitability and unpreventability of her demise, he is saddened even further by the grief exhibited by her mourning family, who have decided to return to their previous home. He decides to pay tribute to his deceased friend with P.T. by crafting a memorial wreath, but soon afterward he discovers a terrified May Belle by the creek, who had attempted to use a fallen tree as a bridge to Terabithia. After assisting her, he chooses to fill the void left by Leslie's passing by making May Belle the new queen of Terabithia, permitting her to join in his sanctuary from then onward.