The novel opens with the marriage in June 1857 of Lucy Graham, a beautiful, childlike blonde who enchants almost all who meet her, to Sir Michael Audley, a middle-aged, rich, and kind widower. Lucy was a governess for the local doctor, Mr. Dawson until her marriage. Previous to that Lucy was in service with Mrs. Vincent, but very little is known about her past before this. Around the time of the marriage, Sir Michael's nephew, the barrister Robert Audley, welcomes his old friend George Talboys back to England, after three years of gold prospecting in Australia.
George is anxious to get news of his wife, Helen, whom he left three years ago when their financial situation became desperate, to seek gold in Australia. He reads in the newspaper that she has died, and, after visiting her home to confirm this, he becomes despondent. Robert Audley cares for his friend, and, hoping to distract him, offers to take him to his wealthy uncle's country manor. George had a child, Georgey, who was left under the care of Lieutenant Maldon, George's father-in-law. Robert and George set off to visit Georgey, and George decides to make Robert little Georgey's guardian and caretaker of 20,000 pounds put into the boy's name. After settling the matter of the boy's guardianship, the two set off to visit Sir Michael.
While at the country manor Audley Court, Lady Audley avoids meeting with George. When the two seek an audience with the new Lady Audley, she makes many excuses to avoid their visit, but he and Robert are shown a portrait of her by Alicia Audley, Robert's cousin. George appears greatly struck by the portrait, unbeknownst to Robert (who credits the unfavourable reaction to that evening's storm). Shortly thereafter, George disappears upon a visit to Audley Court, much to Robert's consternation. Unwilling to believe that George has simply left suddenly and without notice, Robert begins to look into the circumstances around the strange disappearance.
While searching for his friend, Robert begins to take notes of the events as they unfold. His notes indicate the involvement of Lady Audley, much to his chagrin, and he slowly begins to collect evidence against her. One night, he reveals the evidence and notes that George was in possession of many letters that his former wife wrote. Lady Audley immediately sets off to London, where the letters were kept, and Robert follows after her. However, by the time he arrives, he discovers that George's possessions have been broken into with the help of a local locksmith and that the letters have vanished. One possession, however, remains – a book with a note written by George's wife that matches Lady Audley's handwriting. This confirms Robert's suspicion that Lady Audley is implicated in George's disappearance; it also leads Robert to conclude that Lady Audley is actually George's supposedly dead wife.
Suspecting the worst of Lady Audley and being afraid for little Georgey's life, Robert travels to Lieutenant Maldon's house and demands possession of the boy. Once Robert has Georgey under his control, he places the boy in a school run by Mr. Marchmont. Afterwards, Robert visits George's father, Mr. Harcourt Talboys, and confronts the squire with his son's death. Mr. Harcourt listens dispassionately to the story. In the course of his visit to the Talboys' manor, Robert is entranced by George's sister Clara, who looks startlingly like George. Clara's passion for finding her brother spurs Robert on.
In February 1859, Robert continues searching for evidence. He receives a notice that his uncle is ill, and he quickly returns to Audley Court. While there, Robert speaks with Mr. Dawson and receives a brief description of all that is known about Lucy's background. He hears that Lucy was employed by Mrs. Vincent at her school since 1852, and, to verify this claim, Robert tracks down Mrs. Vincent, who is in hiding because of debts. According to Miss Tonks, a teacher at Mrs. Vincent's school, Lucy actually arrived at the school in August 1854 and was secretive about her past. Miss Tonks gives Robert a travel box that used to belong to Lucy, and upon examining stickers on the box, Robert discovers both the name Lucy Graham and the name Helen Talboys.
Robert realises that Helen Talboys faked her death before creating her new identity. When Robert confronts Lucy, she tells him that he has no proof, and he leaves to find more evidence, heading to Castle Inn, which is run by Luke Marks. During the night, Lucy forces Luke's wife Phoebe to let her into the inn and Lucy sets the place on fire, with the intention of killing Robert. However, Robert survives and returns to Audley Court and again confronts Lucy. This time, she says she is insane and confesses her life's story to Robert and Sir Michael, claiming that George abandoned her originally and she had no choice but to abandon her old life and child in order to find another, wealthier husband.
Sir Michael is unhappy and leaves with Alicia to travel through Europe. Robert invites a Dr. Mosgrave to make a more astute judgment regarding Lucy's sanity, and he proclaims that she is indeed victim to latent insanity, which overpowers her in times of stress and makes her very dangerous to any and all. Lucy, under the name of Madame Taylor, enters a mental institution located somewhere in Belgium along the route between Brussels and Paris. While being committed, Lucy confesses to Robert that she killed George by pushing him down a deserted well in the garden of Audley Court.
Robert grieves for his friend George until Luke Marks, who was fatally injured in the fire, manages, before dying, to tell Robert that George survived Lady Audley's attempted murder and that George, with Luke's help, left with intent of returning to Australia. Robert is overjoyed, and he asks Clara to marry him and go with him to Australia to find George. Clara accepts, but before they set out, George returns and reveals that he actually visited New York instead. The narrative ends with the death of Lucy abroad, and Clara and Robert happily married and living in a country cottage with George and his son. Robert's formerly infatuated cousin Alicia marries her once-spurned suitor, Sir Harry Towers, and Audley Court is left abandoned along with all of its unhappy memories.