Green Grass, Running Water opens with an unknown narrator explaining "the beginning," in which the trickster-god Coyote is present as well as the unknown narrator. Coyote has a dream which takes form and wakes Coyote up from his sleep. The dream thinks that it is very smart; indeed, the dream thinks that it is god, but Coyote is only amused, labeling the dream as Dog, who gets everything backwards. Dog asks why there is water everywhere, surrounding the unknown narrator, Coyote, and him. At this, the unknown narrator begins to explain the escape of four Native American elders from a mental institution who are named Lone Ranger, Ishmael, Robinson Crusoe, and Hawkeye. The elders are each connected with a female character from native tradition: First Woman and the Lone Ranger, Changing Woman and Ishmael, Thought Woman and Robinson Crusoe, and Old Woman and Hawkeye. The book then divides into four main sections: each of these sections is narrated by one of the four elders.
In addition to these four explaining the "ordinary" events, they each tell a creation story that accounts for why there is so much water. In each creation story, the four encounter a figure from the Bible of Judeo-Christian tradition, as well as the western literary figures from whom each derives his name.
The book has four major plot lines. One follows the escape and travels of the elders and Coyote, who are out to fix the world. Dr Joseph Hovaugh and Babo, his assistant, try to track down the elders. Dr. Hovaugh keeps track of every time the elders have gone missing; he attributes major events, such as the volcanic eruption of Mount St Helens, to their disappearances. The second plot line follows Lionel Red Dog, Charlie Looking Bear and Alberta. The third plot line follows Eli Stands Alone, Lionel's uncle, who lives in his mother's house in the spillway of the Balene Dam. The fourth plot line involves characters from Christian and Native American creation myths and traditions, as well as literary and historical figures including Ahdamn, First Woman, the Young Man Who Walks on Water, Robinson Crusoe, Nasty Bumpo and so on.
The climax of the novel approaches at the time of the traditional Blackfoot annual ceremony of the Sun Dance. Ultimately, the dam breaks due to an earthquake caused by Coyote's singing and dancing. A flood destroys Eli's house, but also returns the waterway to its natural course.
The novel concludes much as it began. The trickster-god Coyote and the unknown narrator are in an argument about what existed in the beginning. Coyote says nothing, but the unknown narrator says that there was water. Once again Coyote asks why there is water everywhere, and the unknown narrator says he will explain how it happened.