Do Androids Dream of Electric Sheep begins in the bleak landscape of San Francisco in 2021 (earlier editions list the year as 1992). The world has been completely altered by World War Terminus and the nuclear destruction that caused a radioactive dust to descend over the entire world. Most of earth's residents had relocated to a new colony on Mars and the government actively encouraged more people to do so. The radioactive dust had killed many forms of life and in the society that remained, life had become extremely important and valuable. All humans are expected to own and keep animals and many of the animals had become quite expensive.
Rick Deckard wakes with his wife Iran in their apartment. Rick is a bounty hunter working with the San Francisco police department. His job is to "retire" androids who have escaped to earth from Mars. Rick is quite self-centered and dreams of one day owning a very expensive animal like his neighbor's horse. Iran is more in touch with the decay of the world around her and willfully sinks into depressions and sadness even though they own a Penfield mood organ that could dial up new emotions for her. Iran is a devout follower of Mercerism, a kind of religion in which individuals fuse with a man named Mercer who is slowly climbing a hill towards his death. The point of Mercerism is to bring all humanity together in a show of empathy towards this man being persecuted.
Rick owns a sheep, but it is an electric sheep, a secret he keeps to himself. He longs to own a real animal but in order to afford one he knows he must retire a great many androids in order to collect the $1000 bounty. Rick reflects that by owning an animal, human beings are able to show the one true emotion that belongs to them alone: empathy. Upon arriving at work one day, Rick finds that his fellow bounty hunter, Dave Holden, had been seriously injured in an encounter with a new kind of android, the Nexus-6. Rick then becomes the department's chief bounty hunter and becomes responsible for finding and retiring the remaining Nexus-6's.
To learn about the Nexus-6, Rick travels to Seattle to visit the Rosen Association, the company that makes the Nexus-6. While there, Rick meets Rachael Rosen and her uncle Eldon. He begins to administer a test called the Voigt-Kampff test which tests for true empathy by asking a series of questions that are supposed to illicit empathetic responses. If someone passes the test, they are human. If they do not, they are androids. Rachael does not pass the test, but Eldon tells Rick that it had been a trick and that she was really human. The Rosen Association was concerned, chiefly, with their ability to continue to manufacture androids. Rick tries once again, and discovers that they had again been trying to trick him and that Rachael was in fact an android. After trying to bribe him with expensive animals, Rick leaves the Rosen Association to continue his mission of finding and killing the Nexus-6 androids, satisfied that they would not be able to pass the test and that he would not accidentally kill a human.
John Isidore is a parallel story that interweaves itself with Rick Deckard's story. John is a "chickenhead," a person that has become mentally impaired because of the radioactive dust. This means that he cannot be considered a full and active member of society or that he could emmigrate to Mars. He is forced into menial labor with an electric animal repair shop. One day John meets a young woman that has moved into his empty apartment building, Pris Stratton. Stratton's apartment is filled with "kipple," a word that means the accumulation of junk, and John offers to help her clean it and to cook her dinner. Pris is reluctant to let anyone near her but John leaves feeling happy that he has made meaningful contact with another human being.
John has an encounter at work in which he mistakenly picks up a sick cat for repair. The cat dies on the way to the shop and John finds out that the cat was actually real. This horrifies John and he is forced to call the cat's owner and explain its death. The owner is also horrified but agrees to have a mechanical cat built so that her husband, who loves the cat, will not know the difference. John returns from work to cook dinner for Pris Stratton but something is not quite right with her. She is both grateful for John's interest in her, yet is often mean and cruel to him because of his disability.
Rick Deckard, meanwhile, begins the task of retiring the Nexus-6 androids. He fortuitously finds the first android, Polokov, when it attempts to imitate a fellow police officer in order to get close to Rick and kill him before he can be killed. Rick realizes the android's plot and kills him quickly. He then turns his attention towards Luba Luft, an android impersonating an opera singer. Rick finds Luft at the Opera House and corners her in her dressing room. He administers the Voigt-Kampff but finds Luft to be adept at avoiding an accurate reading. Luft accuses him of assault and calls the police, an action Rick thinks will spell doom for her.
Instead, Rick finds that the officer that arrests him works for a completely different police force than Rick's, one that he does not even know exists. No one at the force knows him and they begin to accuse him of being an android. Rick is taken to the office of an Inspector Garland where he meets a fellow bounty hunter, Phil Resch. Garland shows Rick that one of the androids he is supposed to retire is, in fact, himself and this confuses and disorients Deckard. When Resch leaves to get his test equipment, Rick realizes that Garland is in fact an android and that this is a shadow android police department, built to watch and keep track of human activity. When Resch returns, he sees the showdown between the two and kills Garland. As they leave the police station together to find Luba Luft, Rick tells Resch that he might be an android who does not remember his previous life on Mars. Resch gets Rick to promise that he will administer a test on him after they retire Luft.
They find Luft at an art museum admiring a painting by Edvard Munch. As they take Luft to their hovercraft, Resch becomes angry and kills Luft in cold blood. Noting Resch's lack of empathy, Rick administers a test on him, but finds that he is in fact human. Finding a human devoid of empathy who enjoys killing just for the sake of killing shakes Rick's faith in his own ability to have empathy towards androids. He decides to retire from bounty hunting.
While John Isidore cooks dinner for Pris Stratton, she makes comments that lead the reader to believe that she is, in fact, an android. She tells John of her previous life on Mars and why she tried to escape. Roy and Irmgaard Baty, her only friends on earth, join them. Roy had been a pharmacist who had attempted to find a way, through drugs, for androids to have the emotional and spiritual experience of Mercerism. Roy and Irmgaard are skeptical of John at first, but then reveal that they are androids and that they are being hunted by bounty hunters. They decide that Pris might be safer if she lives with John and John is thrilled at the chance to care for a life, even if it is an android life.
Using his $3000 of bounty money, Rick goes and purchases a very expensive goat. He takes it home and shows it to Iran who is thrilled with the purchase. Rick then tells her that because he feels empathy towards androids he can no longer hunt them. But, when Rick fuses with Mercer, Mercer tells him that even though it is wrong to hunt androids, he must do it anyway. He then receives a call from his boss, Inspector Bryant, telling him that the last three androids have been found and that he is expected to retire them that evening.
Rick call on Rachael Rosen to come help him. Rachael had offered her help because other androids might be more amenable to talking with another android, allowing Rick to get closer to them and to kill them. Rachael and Rick meet in a hotel and Rick has sex with her. She then tells him that there is an android that looks exactly like her and that the entire experience had been arranged by the Rosen Association in order to make him feel more empathy towards androids so that he would not be able to retire them. Rick finds that he cannot retire Rachael Rosen, but that he can still go on and attempt to retire the other three Nexus-6's, though he has a feeling that his empathetic response will not allow him to finish the work, thereby ensuring his own death.
John Isidore has the feeling that he is being used by the androids, but he doesn't care. While hauling Rachael's stuff up to his own apartment, he finds a spider, an insect though to be extinct. When he shows it to the androids, they begin to torture the creature, pulling off its legs, until John finally drowns the thing in order to put it out of its misery. At the same time, Buster Friendly, a television personality who is constantly being broadcast, reveals that he has discovered Mercerism to be a complete fake, a religion that was engineered by a group of Hollywood filmmakers. Both the spider incident and the news of Mercer sends John into a void. He attempts to fuse with Mercer and finds that Mercer admits to him that he is a fake, but that this does not mean there is no value in the religion. He hands John a spider and John leaves the apartment as the other androids discover that a bounty hunter has entered their building.
Rick meets John Isidore on the roof of his building where he is releasing the spider into a patch of weeds. Rick then goes into the building to retire the androids. As he goes through the building he has an encounter with Mercer, who tells him that what he has to do must be done. At that time a girl that looks just like Rachael Rosen runs towards him and Rick realizes that, because she looks just like Rachael, she is there to illicit an empathetic response in him, giving the other androids time to kill him. He fires his laser and kills Pris Stratton.
He then enters John Isidore's apartment where he proceeds to shoot and kill both of the remaining androids. As Rick leaves the scene and returns to his apartment building, Iran meets him with the bad news that their goat is dead. A young woman had come to their apartment and thrown the goat off the side of the building. Rick realizes that it was Rachael Rosen and, upset, he leaves the apartment.
He flies to northern California where he gets out of his hover car and steps into a cold desolate landscape. He begins to climb a hill and realizes that he is soon taking on the form of Mercer. He feels a complete fusion with Mercer that he had never felt before and realizes what it means to have true empathy. He himself has been defeated, banishing all notion of selfishness. As he returns to his car he is delighted to find a toad, an animal thought once to be extinct. He once again has visions of all the money and fame he will receive from finding the animal.
When he returns to his apartment, Iran discovers that the animal is actually mechanical. Instead of another disappointment, however, Rick discovers that with his true sense of empathy that he could maybe love the toad just as if it were real. The novel ends with Rick falling asleep and Iran ordering supplies in order to care for the toad as if it were real.