At the beginning of the story, protagonist Haroun Khalifa lives with his father Rashid, a famous storyteller and doctor, and his mother Soraya, until the latter is seduced by their neighbour "Mr. Sengupta" to leave home. Thereafter, Rashid is hired to speak on behalf of local politicians but fails his initial assignment. With Haroun in tow, Rashid is thence conveyed to the "Valley of K" by courier "Mr. Butt," to speak for "Snooty Buttoo," another politician. Attempting to sleep aboard Buttoo's yacht, Haroun discovers "Iff the Water Genie," assigned to detach Rashid's imagination, and demands to speak with Iff's supervisor, the Walrus, to argue against this decision. They are then carried to the eponymous "Sea of Stories" by an artificial intelligence in the form of a hoopoe, nicknamed "Butt" after the courier. In the Sea of Stories, Haroun learns the Sea is endangered by antagonist "Khattam-Shud," who represents the end.
In the Kingdom of Gup, King Chattergy, Prince Bolo, General Kitab, and the Walrus announce their plans for war against the neighbouring kingdom of Chup, to recapture Bolo's betrothed Princess Batcheat and to stop the pollution of the Sea of Stories. Rashid joins them here, having witnessed Batcheat's kidnapping. Thereafter, Haroun and his companions join the Guppee army of "Pages" toward Chup, where they befriend Mudra, Khattam-Shud's former second-in-command.
Haroun, Iff, Butt the Hoopoe, and Mali, the stories' gardener, investigate the Sea's "Old Zone" and are captured by Khattam-Shud's animated shadow, who plans to plug the Story Source at the bottom of the Sea. Before he can do so, Mali destroys the machines used by Khattam-Shud to poison the Sea, and Haroun restores the Sea's long-annulled alternation between night and day, thus destroying the antagonist's shadow and those assisting him, and diverting the giant "Plug" meant to seal the Source. In Chup, the Guppee army destroys the Chupwalas' army and releases Princess Batcheat; whereupon Khattam-Shud himself is crushed beneath a collapsing statue commissioned by himself. Thereafter the Walrus promises Haroun a happy ending of his own story. On return to the human world, Rashid reveals Haroun's adventures to local citizens, who expel Snooty Buttoo.
When Rashid and Haroun return home, the people of their city are loosened from the shackles of their misery and remember the name of their home, Kahani. Soraya returns to her son and husband.[4]
The novel concludes with an appendix explaining the meaning of each major character's name.
